Global stocks hit record high after Fed tapers bond purchases but signals patience over interest rates
- Global stocks rose to record highs Thursday after the Federal Reserve tapered its bond purchases.
- Investors were relieved the Fed signaled it will be patient when it comes to hiking interest rates.
- The Bank of England on Thursday could become the first major central bank to raise rates.
Global stocks climbed to another record high Thursday, after the Federal Reserve cut back on its support for the bond market but signaled that it does not expect to raise interest rates soon.
In the US, S&P 500 futures rose 0.1%, while Dow Jones futures were little changed, after their linked benchmarks logged record closes Wednesday. Futures for the tech-heavy Nasdaq 100 were up 0.4%, with fast-growing companies looking more attractive when interest rates are low.
The MSCI all-world index was at a record high on Thursday, rising 0.16% to 754.08.
In Asia overnight, China’s CSI 300 index gained 0.99%, while Tokyo’s Nikkei 225 climbed 0.93%.
Europe’s continent-wide Stoxx 600 was up 0.52% in early trading, while London’s FTSE 100 was 0.22% higher ahead of a key interest rate decision from the Bank of England.
The Federal Reserve on Wednesday said it would trim its $120 billion a month of bond purchases by $15 billion in November and December, a timeline that could end the programme by June 2022.
The asset-purchase scheme was started in March 2020 to soothe the bond market and hold down longer-term borrowing costs in the US economy, to support lending during the coronavirus crisis.
But Fed officials said stronger-than-anticipated inflation and a fall in unemployment made now an appropriate time to dial down the huge amounts of support the central bank has been providing.
Market reaction was muted, however, in large part because the Fed had made clear for weeks that it planned to “taper” purchases at the end of this year.
US stocks in fact finished at record highs for the fourth day in a row, after Fed Chair Jerome Powell laid out a cautious approach to raising interest rates. He said: “We don’t think it is a good time to raise interest rates because we want to see the labor market heal further.”
Goldman Sachs analysts, led by David Mericle, said they thought the Federal Open Market Committee’s decision was balanced. They said policymakers took a “dovish” approach to raising interest rates but gave a “hawkish” acknowledgement that the central bank could be forced to act if inflation and employment heat up sharply.
The analysts expect that the taper will “run its course at a $15 billion per month pace and that the FOMC will then hike interest rates for the first time in July 2022, shortly after tapering concludes.”
Investors’ eyes turned to the Bank of England, which markets expect to become the first major central bank to raise interest rates during the coronavirus era in its policy announcement later Thursday.
Bond yields, which move inversely to prices, rose after the Fed decided to reduce its activity in the market. But they were little changed on Thursday, with the yield on the key 10-year US Treasury note down very slightly to 1.57%.
Oil futures rose ahead of the meeting later Thursday of OPEC+, which is expected to keep to its plan for slow increases in output. Prices fell Wednesday after news of a US-Iran talks and a rise in US inventories. Brent crude was up 1.37% to $83.10 a barrel, while WTI crude was 1.08% higher at $81.73 a barrel.
Bitcoin was down 1.5% to $61,829, a way off the record high of above $66,000 reached at the end of October.