– What a wild last few hours of trade in currency and stock markets. The US Federal Reserve’s decision to Taper (reduce monthly bond buying by $10 billion to $75 billion per month) sent ructions all through markets. The key is that the Taper was accompanied by a statement and press conference from outgoing Fed chairman Ben Bernanke which was very dovish. This means that the Fed said, and the market understood, that with inflation very low and unemployment still too high, rates are going to be lower for longer.
– Rates near zero for an extended period has buoyed stocks, with the Dow up more than 350 points from the low just after the announcement and 293 points on the day for a gain of 1.84% to 16,168 at the close. The Nasdaq is up 1.15% and the S&P 500 has risen 30 points to 1,811 for a gain of 1.68%.
– The question for traders is whether this is the start of the Santa rally. The answer may actually have been provided in Japan yesterday when the BoJ said there was still significant room for bond purchases, which drove the USDJPY higher and saw the Nikkei rally 2%. Overnight, the BoE also agreed to keep its aggressive monetary stimulus in place. So we have a global situation where three of the big four central banks (Fed, BoJ and BoE) are still dropping money into the global economy.
– In Europe, the FTSE was actually a bit nonplussed by the BoE minutes and is up just 0.09%, while the DAX, CAC, FTSE MIB and IBEX were all up just over 1%.
– Here in Australia, trade in overnight futures saw the Dec contract of the SPI 200 jump 50 points at 7.33 AEDT to 5148 bid with the March contract up a similar amount.
– On FX markets… what a wild and crazy time since the announcement this morning. The range in the Aussie between 6am and 7am was a whopping 124 points, with a low of 0.8819 and a high of 0.8943. It’s now back under pressure at 0.8850, as Bernanke has noted the Fed can taper at each meeting in 2014.
– Elsewhere in FX, the combination of the Fed and the BoJ has seen USDJPY rocket higher to 103.57 for a gain of 0.9% on the day. Sterling is the big winner though, up 1% to 1.6423 while the euro has been almost as volatile as the Aussie and collapsed 70 points in the last half hour.
– On Commodity markets, Gold is back on support at $1223 an oz. Crude is up 0.57% to $97.77 Bbl while Dr Copper is fixed at $3.37 lb. The Ags were lower, with Corn falling 0.41%, Wheat down 1.13% and Soybeans down 1.63%.
– While all the focus has been on the Fed, Bitcoin has almost had a full round turn to where the big rally started from a month ago after Chinese officals continue to clamp down on its use. It sits at $568 this morning.
On the data front, Kiwi GDP is out as is the RBA Bulletin and Japanese economic indices. Retail sales in the UK tonight, jobless claims in the US along existing home sales and Philly Fed manufacturing index are also out.
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