World markets follow Wall St higher on Fed rates promise
BEIJING (AP) — Global stock markets rose Thursday and Wall Street futures were mixed after the U.S. Federal Reserve said its key interest rate would be kept near zero through 2023 even it forecast inflation picking up.
London and Frankfurt advanced in early trading while Shanghai, Tokyo and Hong Kong closed higher. Sydney retreated.
On Wednesday, Wall Street hit a new high after the Fed said this year's U.S. economic growth should rebound to 6.5% — its strongest since the 1980s — and inflation will climb above 2% for the first time in years.
Investors worry that if inflation picks up, central banks might respond by raising interest rates, which would cool economic growth. But Fed Chairman Jerome Powell's comments at a news conference appeared to reassure them.
“The market reaction suggests investors are satisfied with the Fed’s explanations for now,” said Tai Hui of JP Morgan Asset Management in a report. He said the Fed “may need to provide more handholding” as inflation rises.
In early trading, the FTSE 100 in London advanced 0.1% to 6,772.41 and the DAX in Frankfurt rose 0.6% to 14,687.68. The CAC 40 in Paris was 0.4% higher at 6,080.36.
On Wall Street, the future for the benchmark S&P 500 index lost 0.3% while that for the Dow Jones Industrial Average was up 0.1%.
On Wednesday, S&P 500 rose 0.3% while the Dow gained 0.6%. The Nasdaq added 0.4%.
In Asia, the Shanghai Composite Index rose 0.5% to 3,463.07 and the Nikkei 225 in Tokyo advanced 1% to 30,216.75. The Hang Seng in Hong Kong added 1.2% to 29,384.84.
The Kospi in Seoul advanced 0.6% to 3,066.01 while Sydney's S&P-ASX 200 was off 0.7% at 6,745.90.
India's Sensex lost 0.8% to 49,401.84. New Zealand also declined while Southeast Asian markets advanced.
Investors have been uneasy that inflation might accelerate after governments flooded their economies with extra spending and credit to reverse the deepest global slump since the 1930s.
Central banks traditionally respond to higher pressure for prices to rise by hiking interest rates. But Fed officials have said they would let the U.S. economy “run hot” to make sure a recovery is gaining traction.
Before his comments Wednesday, the yield on the 10-year U.S. Treasury bond, or the difference between its market price and the payout if held to maturity, widened to 1.68%, the highest level since January 2020.
Yields fell and stocks gained after Powell spoke.
Banks, industrial stocks and companies that rely on consumer spending helped lift the market. Those gains outweighed a pullback in health care, utilities and other sectors.
Investors are betting the economic malaise will dissipate as spring arrives and more Americans get vaccinated against the coronavirus. The $1,400 stimulus checks the Biden administration began sending to individuals last weekend are helping. But faster economic activity could also translate into inflation.
Fed policymakers foresee unemployment falling from 6.2% to 4.5% by year’s end and to 3.9% at the end of 2022.
That suggests the central bank will be close to meeting its goals by 2023, when it expects inflation to exceed its 2% target and for unemployment to be at 3.5%. Yet it still doesn’t project a rate hike then.
In energy markets, benchmark U.S. crude lost 58 cents to $64.02 per barrel in electronic trading on the New York Mercantile Exchange. The contract fell 20 cents on Wednesday to $64.60. Brent crude, the basis for international prices, retreated 68 cents to $67.32 per barrel in London. It declined 39 cents the previous session to $68.
The dollar rose to 109.17 yen from Wednesday's 108.86 yen. The euro declined to $1.1953 from $1.1979.