US stocks and crude oil prices rose and the dollar weakened yesterday as investors bet the Federal Reserve’s fresh dose of monetary stimulus would improve economic growth.
The US central bank initiated another aggressive stimulus programme, saying it will buy $40bn of mortgage-backed debt per month until the outlook for jobs improves substantially as long as inflation remains contained.
Analysts said the Fed’s move would have wide-reaching impact and was part of a global shift toward extra monetary stimulus.
“You’re witnessing global economic stimulus across the board,” said Quincy Krosby, market strategist at Prudential Financial. “The Fed’s actions are occurring in conjunction with the European Central Bank’s commitments to support the euro and amid talk that China could also deliver a stimulus package.”
China’s central bank cut interest rates in June and July and has lowered banks’ reserve requirement ratio three times since late 2011 to free money for new lending. It could repeat those measures to help shore up the world economy.
Stocks made strong gains after the Fed released its statement, propelling the S&P 500 stock index to its highest close since December 2007. The prospect of even lower rates pushed investors to seek higher returns in riskier assets like stocks.
The Dow Jones industrial average ended up 206.51 points, or 1.55 per cent, at 13,539.86. The Standard & Poor’s 500 Index was up 23.43 points, or 1.63 per cent, at 1,459.99. The Nasdaq Composite Index gained 41.51 points, or 1.33 percent, to 3,155.83.
The MSCI index of global shares rose 1.11 per cent to 335.39.
The rally in riskier assets like stocks compounded the strong gains already scored in anticipation of Fed action.
Oil prices rose on expectations the Fed move would encourage investors to push money into riskier assets. including commodities and equities, even though analysts cautioned that the underlying weak conditions that motivated the Fed to act did not favour robust demand for oil.
October Brent crude rose 94 cents to settle at $116.90 a barrel, marking the sixth straight session the international benchmark has traded higher.
US crude rose $1.30 to $98.31 a barrel, off earlier highs of $98.58, the highest since $102.72 on 4 May.
The dollar fell broadly, hitting a seven-month low against the yen and a four-month trough against the euro.
The euro, which rose as high as $1.3001, has also been aided by European Central Bank efforts to help Eurozone nations struggling with heavy debt to contain their borrowing costs.
US Treasuries rose, their yields moving lower. The benchmark 10-year Treasury rose 7/32 in price. Its yield eased to 1.74 per cent from 1.76 per cent late on Wednesday.