Fed Chairman’s speech drives markets upwards amid geopolitical concerns
The US equity market rallied yesterday and the S&P 500 shot to its all-time high as the US Federal Reserve Chairman Janet Yellen pledged monetary stimulus for as long as necessary to achieve the central bank’s goals. Yellen ignored concerns about accelerating inflation, diminishing labor-market slack and asset bubbles, emphasizing the Fed’s view that rates are likely to stay low for a prolonged period.
The Federal Open Market Committee will continue to trim bond purchases in ‘measured steps’ and keep interest rates low after bond buying ends. Yellen said that she is aware that stock valuations are within their historic average; however, low volatility is worrying as it may encourage investors to assume excessive risk. Volatility is a measure of market price movements and is the main indicator of risk in financial markets. Evidence is pointing towards the weakest global economic recovery on record and yesterday’s Fed statements confirm that central banks are tilting to this view.
In Asia stock rose towards a six-year high following the US Federal Reserve statement earlier and after Chinese Premier Li Kepiang pledged to sustain China’s Economic expansion forecast. The MSCI Asia Pacific index advanced 1.3 percent heading to its biggest gain since February. Chinese growth will remain a determinant of market performance going forward. Premier Li’s commitment to avoid a hard landing for the Chinese economy should provide comfort to market participants concerned about a slowdown in the economic powerhouse. European stocks also opened strongly after the US news. The STOXX 600 Benchmark index opened 0.70% higher.
Meanwhile Argentina threatened to default on its debt on Wednesday as the government called it ‘impossible’ to service bond payments due by the end of June. Argentina is locked in a 12-year legal fight over its 2002 default on $100 billion in bonds.
Iraq has asked for US Support in its fight against insurgents. However, the US appears reluctant to assist a government that has repeatedly adopted as sectarian agenda. Instability in the region has resulted in the price of Brent reaching $114.7 this morning, its highest level in over a year. A return to higher oil prices is a concern to the fragile global recovery.
On a positive note, talks between Ukrainian President Petro Poroshenko and Russian Premier Vladimir Putin point towards a ceasefire. Government officials from the country’s conflict regions will meet today in Kiev. The EU is dependent on Russian gas that passes through Ukrainian pipelines. Stability in the region is fundamental for a sustained EU economic recovery.
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