US markets begin the year on a high

STOCKS and the euro started the year with a sharp rally yesterday, boosted by better-than-expected global data and hopes the Fed could ease monetary policy further, even as crude surged on tensions between the US and Iran.

A number of Federal Reserve officials believed economic conditions could “well” warrant a further easing of monetary policy, according to 13 December meeting minutes released yesterday.

This month the Fed will begin issuing policymaker forecasts for its benchmark interest rate and when officials expect the first rate rise to occur.

The euro hit a session high as the minutes were released, advancing to $1.3076 before paring gains to 0.93 per cent, or $1.3048.

The Fed minutes came after data were released showing growth in US manufacturing accelerated in December to its fastest pace since June, while a sharp drop in German joblessness to the lowest in two decades whetted global risk appetite.

Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington, said: “The dollar was already on the defensive today, but the minutes do suggest that the Fed is still open to easing monetary policy, which is negative for the dollar.”

Asian markets rose after data showed China’s big manufacturers avoided a contraction in December, though downward risks persist.

US stock indexes rallied sharply, hitting multi-month highs. The Dow Jones industrial average climbed as much as 2.15 per cent, hitting its highest since July, before paring gains to close up 1.47 per cent. The Nasdaq Composite Index added 1.67 per cent. The Standard & Poor’s 500 Index gained 1.55 per cent after having notched its highest intraday level since late October.

Another report showed US construction spending surged to a near 18 month high in November, adding to recovery hopes.

US Treasuries prices fell in thin trading as investors cashed in year-end gains. The safe-haven appeal of US government debt diminished after the December factory report.

“The beginning of the year tends to start out positive as people want to put money to work, but the overseas data can’t be overstated in its importance, especially since the US data has been so strong as well,” said Sal Catrini, a managing director for equities at Cantor Fitzgerald & Co in New York.

Global stocks as measured by the MSCI world equity index rose 1.8 percent and hit a near one-month high.