Market at five-year high as investors ride Bernanke wave
Wall Street surged to a record high following the Fed decision, sparking strong rallies on global sharemarkets, while the US dollar and Treasury yields went into a tailspin.
Australia's sharemarket soared to five-year highs, with the benchmark S&P/ASX 200 Index rising 57.36 points, or 1.1 per cent, to 5295.5. As the greenback weakened, the Australian dollar punched through US95¢, while gold jumped more than 4.6 per cent to $US1364.11 an ounce.
Investors were expecting the Fed to start lopping off $US10 billion of its $US85 billion monthly stimulus, which would have strengthened the US dollar and pushed down the price of gold.
But Fed chairman Ben Bernanke said unemployment was still too high and inflation too low to begin any tapering, which economists are tipping will begin in December or early next year under Mr Bernanke's most likely replacement Janet Yellen. But even then, Ms Yellen, who has been a strong supporter of the stimulus strategy, is expected to slowly unwind the program if she takes the helm.
Gold stocks were the big winners on the ASX, with nine gold miners in the index's top 10 performing companies. Perseus Mining and St Barbara led the charge, rising 22.5 per cent and 20.2 per cent to 68¢ and 65.5¢ respectively, while Medusa rose 18.5 per cent to $2.43 and Beadell Resources firmed 17.6 per cent to 87¢.
Among the big iron ore miners BHP Billiton gained 1.6 per cent to $36.68 while Rio Tinto jumped 3.1 per cent to $63.63, respectively as metals prices soared overnight.
St George Bank chief economist Besa Deda said the market was "caught" by the Fed's decision.
Arab Bank Australia Treasury dealer David Scutt said he was surprised the market held onto its early gains. "But look the Fed is probably going to be printing for the rest of this year and maybe into 2014," Mr Scutt said.
However, stocks with large exposure to the US market fell.
Packaging company Amcor shed 1.6 per cent to $10.60 and QBE Insurance lost 1.4 per cent to 21¢.
Ten-year US Treasury yields tumbled 16 basis points to 2.7 per cent, to the delight of India, Indonesia and other emerging markets. A rise in Treasury yields recently, which would have continued if the Fed began tapering, has made it harder for emerging economies to pay their debts.
Frequently Asked Questions about this Article…
The Fed chose not to start tapering its $US85 billion monthly asset purchases, saying unemployment remained too high and inflation too low. That decision sparked a global risk-on move: Wall Street hit record highs, the US dollar weakened, gold jumped and many sharemarkets rallied. For everyday investors, it meant a short-term boost to risk assets and commodities and lower US Treasury yields.
Australia’s S&P/ASX 200 jumped 57.36 points (about 1.1%) to 5,295.5, a five-year high. The rally was driven largely by commodity and gold stocks after the Fed surprised markets by keeping stimulus at full throttle.
With the US dollar weakening, gold rose more than 4.6% to US$1,364.11 an ounce. That lift in the gold price drove big gains in gold miners on the ASX: Perseus Mining (+22.5% to 68¢), St Barbara (+20.2% to 65.5¢), Medusa (+18.5% to $2.43) and Beadell Resources (+17.6% to 87¢).
Iron ore and metals prices rallied overnight, helping major miners. BHP Billiton gained about 1.6% to $36.68 and Rio Tinto rose about 3.1% to $63.63 on the same commodity-fuelled market lift.
The article notes that stocks with large exposure to the US market underperformed on the day. For example, packaging company Amcor fell 1.6% to $10.60 and QBE Insurance lost 1.4% to 21¢, even as commodity and gold names led gains.
Ten-year US Treasury yields tumbled 16 basis points to 2.7%. Lower US yields reduce borrowing costs and eased pressure on countries with dollar-denominated debts, providing relief to emerging markets such as India and Indonesia according to the article.
Economists mentioned in the article still expect tapering could begin in December or early next year, but the likely Fed replacement (Janet Yellen) is expected to unwind stimulus slowly. Arab Bank Australia dealer David Scutt said he was surprised markets held gains and suggested the Fed might continue large-scale easing for the rest of the year and possibly into 2014.
Keep an eye on major central bank announcements (like Fed statements), watch key market indicators (S&P/ASX 200, gold price, AUD/USD, and US Treasury yields) and note sector reactions (gold and miners versus US-exposed stocks). The article illustrates how a single Fed decision can quickly shift currency, commodity and equity movements—so staying updated helps you understand short-term market swings.
Call 1300 880 160
Start a chat
Schedule a call
