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Europe rallies on Fed

Wednesday, Dec 18, 2013 - 01:32

Dec.19 - After strong gains in Asian shares, European markets rally on the U.S. Federal Reserve's announcement that it will modestly trim its stimulus programme. David Pollard reports.

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Christmas comes early to the German stock exchange. With a strong rally in European shares on the U.S Federal Reserve's announcement of a ten billion dollar per month cut or 'tapering' in its bond buying programme. Traders like Robert Halver of Baader Bank says markets here are following on from record highs on the Dow and S&P and a 1.7 percent rise in the Nikkei. SOUNDBITE (German) TRADER AT BAADER BANK, ROBERT HALVER, SAYING: "It's a dovish tapering. To buy 10 billion less per month is not really that bad. And thirdly, very crucial - interest rates are staying low, they're not being raised. That means tomorrow, the day after tomorrow, and the day after that the financial market will be drowning in liquidity." So whilst there was surprise at the Fed news coming this month and not next - there was a better surprise at the limited scope of it. Even more so with Ben Bernanke amending the Fed's forward guidance programme. The Fed chairman is now promising unemployment will have to fall even further before a hike in U.S. interest rates. Hardly the end of cheap money, says Simon Derrick of BNY Mellon. SOUNDBITE (ENGLISH) SIMON DERRICK, CHIEF CURRENCY STRATEGIST, BANK OF NY MELLON, SAYING: ''We've pushed down the forward guidance, so actually it's well beyond six and half percent before we're really going to start talking about a hike in the Fed funds rate. We also know that the forecasts of the average FOMC member is really only going to be that we're going to get a 75 basis points Fed funds rate by the end of 2015. So what we've really got here is an extended period of monetary accommodation.'' One possible fly in the ointment, according to some traders: the Fed has a habit of changing its forward guidance and could do so again - especially if a rebound in the US economy means a rate hike sooner rather than later.

Europe rallies on Fed

Wednesday, Dec 18, 2013 - 01:32

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