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A sharp turnaround by the Federal Reserve on the prospect of a further rise in interest rates has put global equities back on track for their best month in almost three years.
Asian stocks recorded the strongest rally on Thursday, echoing a jump of more than 1.5% on Wall Street yesterday, after policymakers said they would be patient in badessing the stock market. outlook for monetary policy and that they were willing to change the pace at which the central bank's multi-billion dollar holdings of US government bonds were liquidated.
This change was enough to convince investors that the Fed, which was forecasting two more rate hikes in December this year, tried to wipe out the quantitative policies that poured billions of dollars into the US economy after the financial crisis. , is willing to extend an easy money position for a decade.
"We are actually rather encouraged by this new tone in the words of the Fed, because we had pleaded for the opportunity of a pause to increase rate increases even before the terrible fourth quarter of 2018 for the markets," he said. said Rick Reider, Head of Fixed Income at BlackRock.
The change in the Fed led to a dramatic recovery in global equities in January, with the reversal of the near-collapse of equities in December. The FTSE All World, a broad benchmark for global equities, climbed 7.2% in January and is close to its best month since March 2016. After dropping nearly 10% in December, the S & P 500 has jumped 7% in its best month since October 2015.
The Fed discussed the slowdown in growth in major markets, including China, and the intensification of geopolitical uncertainty, including trade tensions and Brexit, for its radical change, which has relieved those who, including President Donald Trump, had been too disappointed. bullish on the outlook.
Michael Feroli, US economist at JPMorgan Chase, said he could not remember a change of course of such magnitude from the Fed without a major change in the economic context . Harm Bandholz, chief US economist at UniCredit, said the changes to the Fed's monetary policy statement gave traders and investors everything they could have hoped for.
Asian equity markets were up sharply on Thursday as Japan's Topix and Hong Kong's Hang Seng indices both rose by nearly 1%. The CSI 300 of mainland China also increased by more than 1%. In Europe, the Xetra Dax 30 Frankfurt regained momentum, not gaining 0.7% at the opening. The Stoxx 600 throughout the area was also flat.
The prospect of an earlier end to the Fed's monetary tightening led to a rally in sovereign bonds, as yields on two-year Treasuries fell below 2.5% for the first time in three weeks. The 10-year US Treasury yield dropped one basis point to 2.67%.
Meanwhile, the dollar has weakened overall as the renminbi has reached its highest level in six months. The onshore renminbi advanced 0.2%, giving it the strongest month of its calendar year, up 2.5% from the US against January.
On Wall Street, futures are up 0.1% for the S & P 500 on Thursday.
Tai Hui, chief markets strategist for the Asia-Pacific region at JPMorgan Asset Management, said the Fed's statement to keep rates unchanged "offset one of two upside risks to risky badets. Asian markets and emerging markets ".
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The trade tension between China and the United States, which he described as "much more difficult," is the last hurdle to overcome. The Fed's announcement is also expected to ease worries about rising financing costs for emerging market companies borrowing in US dollars, he added.
The focus is now firmly on trade negotiations between the United States and China. Donald Trump is scheduled to meet Chinese Vice Premier Liu He at the end of the high-level talks this week to pressure Beijing to make concessions on economic reforms that could end to the tariff war.
ING badysts said US negotiators were increasingly pushing for fundamental changes in China's "Made in China 2025" industrial policy, as well as more transparent exchange rate transactions and the value of the renminbi.
At the beginning of the year, Trump spoke to Twitter criticizing "China, the EU and others [for] manipulate their currencies and reduce interest rates. "
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