Markets 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.
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Markets rallied after the US Federal Reserve surprised investors by keeping its asset‑buying program at full throttle. Wall Street hit record highs and Australia’s S&P/ASX 200 jumped 57.36 points (1.1%) to 5295.5, helped by a weaker US dollar, falling Treasury yields and rising commodity prices.
Many investors expected the Fed to cut about US$10 billion from its US$85 billion monthly stimulus. But Fed chairman Ben Bernanke said unemployment remained too high and inflation too low to start tapering, so asset purchases stayed unchanged — a move markets hadn’t fully priced in.
Gold jumped more than 4.6% to about US$1,364.11 an ounce. Gold stocks led gains on the ASX: nine gold miners were among the top 10 performers, with Perseus Mining up 22.5% to 68¢, St Barbara up 20.2% to 65.5¢, Medusa up 18.5% to $2.43 and Beadell Resources up 17.6% to 87¢.
BHP Billiton and Rio Tinto rose as metals prices strengthened overnight — BHP gained 1.6% to $36.68 and Rio Tinto jumped 3.1% to $63.63, reflecting the broader rally in commodity-linked stocks.
The US dollar weakened, the Australian dollar strengthened (punching through US95¢), and 10‑year US Treasury yields tumbled about 16 basis points to roughly 2.7% — moves that supported risk assets and commodities.
Stocks with large exposure to the US market lagged despite the rally. For example, packaging group Amcor shed 1.6% to $10.60 and insurer QBE lost 1.4% to 21¢, reflecting company‑specific US market sensitivities amid the broader market moves.
Market commentators noted the Fed’s stance caught investors off guard. Arab Bank Australia dealer David Scutt said he expected the Fed to keep ‘printing’ for the rest of the year and possibly into 2014, while economists suggested any tapering might come in December or early next year and would likely be gradual under Janet Yellen.
Lower US Treasury yields ease pressure on emerging markets by reducing global borrowing costs. The drop to around 2.7% was described as welcome for countries such as India and Indonesia, because a previous rise in yields would have made it harder for those economies to service foreign‑currency debt.
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