World Stocks, oil shrug off Fed, rise on Obama speech
World stocks and crude oil gained on Wednesday, shrugging off a lukewarm outlook from the Federal Reserve, as investors latched onto the growth prospects of US President Barack Obama's pledge to trim spending.
January 27, 2011 / 14:05 IST
World stocks and crude oil gained on Wednesday, shrugging off a lukewarm outlook from the Federal Reserve, as investors latched onto the growth prospects of US President Barack Obama's pledge to trim spending.
The US dollar slipped and government bond prices pared some losses after the Fed said high unemployment still justified its USD 600 billion bond-buying program, despite recent signs of a strengthening recovery. The broad S&P 500 Index closed at a 29-month high, led by gains in commodity and tech shares, as investors largely ignored the Fed's latest assessment of the US economy. The Fed's outlook after a two-day meeting of policymakers came on the heels of a government report that showed new-home sales rose to an eight-month high in December, just the latest data to signal a pick-up in economic activity."The market is not willing to buy into the Fed's vision," said Jim Vogel, interest rate strategist at FTN Financial in Memphis.Strong corporate earnings continue to support further gains in equity markets, while commodities rebounded from sharp losses the previous session on optimism about demand and supply snags.MSCI's all-country world stock index rose 0.6%.The Reuters Jefferies CRB index, one of the broadest measures of commodity prices, settled up 1.6% for its strongest gain since December 31. "By expressing disappointment about the employment situation, the Federal Reserve is signaling that it will continue to inject liquidity into the economy," said Mohamed El-Erian, co-chief investment officer at Pacific Investment Management Co. in Newport Beach, California."Only part of this liquidity will be absorbed by the US economy. The rest will leak elsewhere, resulting in large capital flows to emerging economies and pressure on commodity prices," he said.On Wall Street, the Dow Jones industrial average closed up 8.25 points, or 0.07%, at 11,985.44. The Standard & Poor's 500 Index gained 5.45 points, or 0.42%, at 1,296.63. The Nasdaq Composite Index rose 20.25 points, or 0.74%, at 2,739.50.The Dow rose above the 12,000 level intraday for the first time since June 2008 before it pared those gains to close just above break-even.Stocks in Tokyo were poised to open flat, with the March futures contract that trades in Chicago for the Nikkei 225 at 10,455, or break-even.Obama's annual State of the Union speech late Tuesday helped bolster sentiment as the president signaled corporate tax cuts, a retooling of the tax code and an end to pet spending projects coveted by many lawmakers.Investors also ignored a report from the Congressional Budget Office, which said the US budget deficit in 2011 will jump nearly 40% over prior forecasts, mostly due to the mammoth tax-cut package brokered by Obama and lawmakers in December.Data that showed new US single-family home sales surged to their highest level in eight months in December while prices were the highest since April 2008 also bolstered sentiment and raised cautious optimism for a housing market recovery. A weaker-than-expected outlook from Boeing Co pulled its shares down 3.1%to USD 70.02 and weighed on the Dow.The dollar pared gains against the yen immediately after the Fed statement, dropping to 82.20, but it rebounded to session highs as US benchmark yields rose.The benchmark 10-year US Treasury note was down 23/32 in price to yield 3.42%.The dollar was up 0.05% at 82.24 yen, while the euro was up 0.07% at USD 98.The dollar was down against a basket of major currencies, with the US Dollar Index off 0.29% at 77.779.US crude for March delivery settled USD 1.14 higher, or 1.32%, at USD 87.33 a barrel, rebounding after six straights days of losses on rising inventories as well as worries about global economic recovery.In London, the March contract for Brent crude settled up USD 2.66 at USD 97.91 a barrel.Brent's premium against US benchmark crude soared to a 24-month high of more than USD 10, the widest since January 2009. US gold futures for February delivery settled up 70 cents at USD 1,333 an ounce prior to the Fed's announcement. Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
