GLOBAL MARKETS-Fed-fueled stocks and bonds fly, Norway's crown shaken

Thu Jun 19, 2014 7:49am EDT

By Jamie McGeever
    LONDON, June 19 (Reuters) - Global stocks and bonds rose on
Thursday after the U.S. Federal Reserve signaled that rising
inflation won't trigger an interest rate rise any time soon,
while the Norwegian crown plunged after the country's central
bank stunned investors by warning it may cut rates. 
    Following the S&P 500's rise to yet another record high on
Wednesday, Asian equities posted strong gains - Japan's Nikkei
225 hit its highest since late January - and European
bourses also opened sharply higher.  
    Investors' sanguine interpretation of the Fed's outlook was
reflected in another collapse in market volatility. The VIX
measure of implied volatility on Wall Street, the so-called
"fear index", and major foreign exchange volatility measures hit
7-year lows.
    The big loser in the wake of the Fed's policy statement and
Chair Janet Yellen's press conference was the dollar. It fell
against major and emerging market currencies, in tandem with
U.S. Treasury yields, hitting a five-year low against sterling. 
    "There was a fear that the Fed would pick up more of a
hawkish rhetoric, which they didn't do," Ioan Smith, director at
KCG, said.
    "It was probably patience on their part, even after the
uptick in inflation in May," he said.
    In mid-afternoon trading on Thursday, the FTSEurofirst 300
 index of leading European shares was up two thirds of a
percent at 1,396 points. 
    Germany's DAX was up Three quarters of a percent at
10,004 points, within 30 points of its record high. Britain's
FTSE 100 was up 0.7 percent at 6,825 points and France's
CAC 40 was up 0.9 percent at 4,571 points.
    The top blue-chip gainer in Europe was Rolls Royce,
with the engine maker up 6 percent after it announced a one
billion pound ($1.69 billion) share buyback. 
    Earlier in Asia, Japan's Nikkei 225 surged 1.6 percent to
15,361 points, and MSCI's broadest index of Asia-Pacific shares
outside Japan gained 0.8 percent.
    
    NORWEGIAN CROWN PLUNGES
    The Fed on Wednesday slashed its 2014 growth forecast but
expressed confidence that the economy will continue to recover
steadily in the coming years, which could warrant a slightly
more aggressive pace of interest rate hikes when they start. 
    But that probably won't be until the middle of next year,
and Yellen dismissed the recent rise in inflation to its highest
in over a year as "noise". 
    "There were those speculating that the Fed would have to
come up with a more hawkish commentary and obviously they have
been disappointed," said Neil Mellor, a currency strategist with
Bank of New York Mellon in London. 
    "Nothing has really changed from the past few days, so there
will be a propensity to buy some euros, and probably sterling in
lockstep with that," he said.
    The dollar index, a gauge of the greenback's strength
against a basket of key currencies, fell 0.4 percent to 80.24.
    The dollar fell 0.1 percent against the yen to 101.81 yen
, the euro rose 0.2 percent to $1.3624 and sterling
hit a five-year high of $1.7028.
    The biggest move in currencies was the Norwegian crown's 1.6
percent tumble to a two-month low against the euro after
Norway's central bank surprisingly lowered its forecast path for
interest rates and said a weak economy could even warrant a rate
cut.  
    "A lot of people have been absolutely done by this ... it
was carnage," said one London-based dealer. 
    In bonds, the benchmark 10-year Treasury note yield
 fell to as low as 2.575 percent, its lowest in a
week. At midday in London it was 2.582 percent.
    In commodities, Brent crude rose to a nine-month
high of $114.80 a barrel hit on persistent worries over oil
exports from war-torn Iraq, where Islamic militants seized much
of its northern region as Baghdad's forces crumbled.  
    Brent was poised for a third day of gains following a rise
of more than 4 percent last week after Islamic militants seized
much of northern Iraq after routing Baghdad's forces.

 (Reporting by Jamie McGeever, additional reporting by Patrick
Graham and Alistair Smout; Editing by Hugh Lawson; To read
Reuters Global Investing Blog click here;
 for the MacroScope Blog click on blogs.reuters.com/macroscope;
 for Hedge Fund Blog Hub click on blogs.reuters.com/hedgehub)
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

A tourist takes a plunge as she swims at Ngapali Beach, a popular tourist site, in the Thandwe township of the Rakhine state, October 6, 2013. Picture taken October 6, 2013. REUTERS/Soe Zeya Tun (MYANMAR - Tags: SOCIETY) - RTR3FOI0

Where do you want to go?

We look at when to take trips, budget considerations and the popularity of multigenerational family travel.   Video