Scoreboard: Patient Fed

The Federal Reserve indicated it's in no hurry to raise rates, while a fall in US consumer prices fuelled a rally on Wall Street.

In US economic data, consumer prices fell 0.3 per cent in November -- marking the largest decline since December 2008. Annual growth eased from 1.7 per cent to 1.3 per cent. The fall in gasoline prices (down 6.6 per cent in November) was the biggest driver. Core CPI (ex food and energy) lifted up 0.1 per cent in November to be up 1.7 over the year. The US current account deficit rose from $98.42 billion to $100.36 billion in the September quarter.

The US Federal Reserve kept interest rates on hold and offered a strong signal that it was on track to raise interest rates next year. The Fed said it would take a "patient" approach to raising interest rates. Fed forecasts: 2015 GDP growth unchanged 2.6 per cent-3.0 per cent, unemployment rate 5.2 per cent-5.3 per cent (down from 5.4 per cent-5.6 per cent), core inflation 1.5 per cent-1.8 per cent (down from 1.6 per cent-1.9 per cent).

European shares once again managed to stage a late rebound on Wednesday driven by a rebound in energy stocks. Speculation of further stimulus by the ECB also boosted sentiment. The STOXX Europe 600 oil & gas index lifted by 3.3 per cent. The FTSEurofirst 300 index rose by 1.9 per cent, the German Dax also gained 1.9 per cent, while the UK FTSE rose by 2.4 per cent. In London trade shares in BHP Billiton gained 3.3 per cent while Rio Tinto rose 4.2 per cent.

US sharemarkets rallied sharply on Wednesday after the Federal Reserve gave a strong signal that it was on track to raise interest rates at some point next year -- pointing to confidence in the US economy. With just over an hour of trade left, the Dow Jones was up by 205 points or 1.2 per cent. The S&P 500 index was up by 1.4 per cent and the Nasdaq gained 66 points or 1.5 per cent.

US treasuries fell on Wednesday (yields higher) as the commentary from the US Fed opened the door further to interest rate hikes in 2015. US 2-year yields rose by 1pts to 0.569 per cent while US 10-year yields rose by 5pts to 2.116 per cent.

Major currencies were mixed against the greenback in overnight trade. The euro eased from highs of $US1.2495 to lows near $US1.2395, and was around $US1.2450 in late US trade. The Australian dollar rose from lows near US81.40c to around US82.30 and traded near US82.20c in late trade. And the Japanese yen traded between 116.80 yen per US dollar to ¥117.70 and was near ¥117.25 in late US trade.

World oil prices lifted on Wednesday as a drop in US oil inventories supported bargain hunting after nearly a week of selling. Brent crude rose by $US2.33 or 3.9 per cent to $US62.34 a barrel while the US Nymex crude price rose by US84c or 1.5 per cent to $US57.30 a barrel.

Base metal prices were mixed on the London Metal Exchange on Wednesday. Tin (down 3 per cent) and nickel (down 2.4 per cent) recorded the largest falls while aluminium managed to eke out a 0.8 per cent gain. Gold rose with Comex gold futures up by US20c an ounce or to $US1,194.50 per ounce. Iron ore fell by US20c to $US67.90 a tonne on Wednesday.

Ahead: In Australia, financial accounts and population data for the September quarter are released. In the US, the leading index and retail trade figures are released.

Savanth Sebastian is an economist at CommSec.

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