Yellen's QE Assurances Send World Stocks Higher
Confirmation by incoming Federal Reserve chief Janet Yellen that the U.S. central bank's loose monetary policy was here to stay lifted world stocks on Thursday while weak euro zone data gave the dollar a boost.
In remarks prepared for her nomination hearing before a U.S. Senate Banking Committee later in the day, Yellen said high unemployment, weak inflation and an economy running below potential meant the Fed had "more work to do".
Her comments sent the Dow and the S&P 500 <.DJI> <.SPX> to record highs on Wednesday with stock futures for both indexes pointing to further gains when Wall St opens. <.N>
"The markets are happy with Yellen's comments," said Michael Leister, senior rates strategist at Commerzbank. "Central bank liquidity is there, growth is low but inflation is also low, which is a pretty decent environment."
World markets have been buffeted since May when the Fed first suggested that it could begin scaling back the $85 billion a month it is spending on bonds to support growth.
Since then, a run of mixed U.S. data has had investors constantly second-guessing the central bank's intentions. Yellen's remarks, which seemed to push any policy change well into next year, have ended that uncertainty for now.
Investors will still be closely watching her defense of the policy stance at the Senate hearing, scheduled to start at 10 a.m. (1500 GMT), although she is expected to stick to the prepared remarks.
The statement was enough for Asian investors to push MSCI's broadest index of Asia-Pacific shares outside Japan up by 0.75 percent <.MIAPJ0000PUS>, as it bounced off a six-week low. The MSCI world index <.MIWD00000PUS> jumped 0.35 percent.
A GDP reading for Japan showing growth slowed slightly less than forecast and comments from Finance Minister Taro Aso, indicating the potential for more intervention to weaken the yen and help exporters, added to the gains.
Tokyo's Nikkei index rose 2.1 percent after Aso's remarks, to close near a six-month high <.N225>, while the Japanese currency fell to leave the greenback up 0.5 percent at 99.815 yen, its highest level since mid-September.
EUROPE RECOVERY SAGS
European shares carried on the momentum, rising 0.5 percent <.FTEU3> by late morning, though data showing the euro area's economy had slowed more than expected in the third quarter dented the market's initial gains.
The euro zone economy, which only emerged from an 18-month recession in the second quarter, saw gross domestic product rise just 0.1 percent for the July to September period as output shrank in France and Italy. <ECONEZ>
The data has added fuel to speculation the European Central Bank may have to ease policy further, and knocked the euro down against the dollar by 0.3 percent to $1.3436.
CASH TAPS OPEN
In the debt market, Yellen's statement, the soft euro zone data, and yesterday's comments from a top European Central bank official on the prospect of bond purchases to counter a fall in inflation all supported demand.
"The euro area recovery is very fragile and that will reinforce markets' expectations that the ECB will maintain its accommodative stance for some time," said Nick Stamenkovic, bond strategist at RIA Capital Markets.
German Bund futures were up 15 ticks on the day at 141.53, while the cash bond yield dropped 1.7 basis points to 1.72 percent.
Benchmark 10-year U.S. Treasury yields, which initially fell below 2.7 pct after Yellen's statement, were around 2.72 percent, down from New York's close of 2.75 percent.
Commodities were proving equally sensitive to the signals that the Fed will keeping pumping money into the system, as the extra liquidity tends to boost investor demand.
Gold rose 0.35 percent to $1,283 an ounce, having snapped a four-day losing streak on Wednesday, though copper steadied near three-month lows to trade at $6,982 a tonne as growing supply blunted appetite for metal.
Brent oil rose towards $108 a barrel, as investors welcomed Yellen's comments, although expectations of a rise in U.S. crude inventories in weekly data due at 1600 GMT limited gains. <O/R>