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European stocks soar as Fed chair drops rate hike course
LONDON, Jan 5, 2019 (BSS/AFP) – Global stocks shot higher and the dollar
sagged on Friday after the head of the US Federal Reserve signalled it was no
longer set on raising interest rates.
The US central bank has no “pre-set” plan for interest rates and will bide
its time to see how the economy evolves before making any moves, Federal
Reserve Chairman Jerome Powell said.
The comments signal a major shift from the Fed’s previous indications it
would continue hiking interest rates, and Powell noted financial markets were
worried about a slowdown in the US and Chinese economies.
Investors have been gripped by fears over the global economy in recent
weeks, which have seen stock prices tumble and confidence wane among
corporations that foresee slowing demand and weakening sales in 2019.
Powell said the Fed is “prepared to adjust policy quickly and flexibly” to
support the economy.
The comments sent US and European stock indices sharply higher, which had
already posted gains on data showing that at least in terms of job creation
the US economy continues to be healthy.
The US economy added a whopping 312,000 jobs in December, and wages rose
steadily, gaining 3.2 percent for the year.
“A solid set of job numbers and some comfortable words from the chairman
of the Federal Reserve have been just the ticket to get markets into bullish
mode,” said Chris Beauchamp, chief market analyst at online trading platform
IG.
At one point in morning trading the Dow, S&P 500 and Nasdaq Composite were
all up by more than 3.0 percent.
In Europe, Frankfurt closed 3.4 percent higher, followed by a gain of 2.7
percent in Paris, and London rising 2.2 percent.
Most Asian exchanges also moved upwards on positive news from China.
A leading survey of Chinese manufacturing nudged higher for December,
confounding analysts who had expected it to decline.
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Meanwhile, China’s central bank moved after markets closed there to
stimulate the economy by allowing commercial banks to use more of their funds
for lending.
Market analyst David Cheetham at XTB online trading platform said that
move by China’s central bank “cut the bank reserve ratio by 1 percentage
point to release around 1.5 trillion yuan of liquidity and this has sparked a
rally this morning in stocks as they look to recover from recent declines.”
Hopes of progress regarding China-US trade war tensions also provided
support to equities, analysts said.
Beijing said Friday a US delegation would visit China at the start of next
week for the first face-to-face talks since President Donald Trump and his
Chinese counterpart Xi Jinping agreed a ceasefire.
Word of the meeting follows small signs of progress — and the absence of
new threats from Trump — while the two sides work to ease trade tensions.
The dollar slid against the euro and pound after Powell’s comments on the
shrinking prospects of interest rate increases.
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