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Friday, January 22, 2021

Stocks up, dollar, bond yields down on Fed rate cut signal

Credit: Reuters - Business (Amazon FireT
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Stocks up, dollar, bond yields down on Fed rate cut signal
Stocks up, dollar, bond yields down on Fed rate cut signal

World stock markets rose on Thursday after the U.S. Federal Reserve signalled it was likely to cut interest rates next month, and the dollar and benchmark bond yields fell to multi-year lows.

David Pollard reports.

For world share markets, this is the hero of the hour.

Jerome Powell's signal that more cheap money is in the pipeline has pushed stocks up in Europe, to some of the highest readings in almost 7 weeks.

(UPSOT) (English) FEDERAL RESERVE CHAIRMAN, JEROME POWELL, SAYING: "Good afternoon and welcome.

My colleagues and I have one overarching goal to sustain the economic expansion ...." There was no rate cut at this week's Fed meeting.

But the suggestion of one to come as early as next month helped drive the MSCI world equity index to a further 0.4 per cent rise - capping three days of gains.

The index covers 47 countries where other central banks are playing their part too.

The ECB and and the Australian central bank signalled this week that more stimulus was needed.

And on Thursday, it was the Bank of Japan's turn to not cut either but also to warn.

(SOUNDBITE) (Japanese) BANK OF JAPAN GOVERNOR, HARUHIKO KURODA, SAYING: "If the Japanese economy's momentum for hitting our price target comes under threat, we will consider easing policy further without hesitation." (SOUNDBITE) (English) FEDERAL RESERVE CHAIRMAN, JEROME POWELL, SAYING: "We're quite mindful of the risks to the outlook, and are prepared to move, and use our tools as needed to sustain the expansion." Despite the outlook worsening on ongoing trade tensions, others, like Norway are more hawkish, actually hiking on Thursday.

And the Bank of England stuck to its message that UK rate rises are likely.

The dollar, though, was still headed for its biggest 2-day drop this year on the Fed's dovish noises, and bond yields were slipping to multi-year lows.

Gold hit a 5-year peak - while oil also raced higher by three per cent - on reports that Iran had shot down a U.S. drone in the Gulf.

That also a reminder of the global risks that could make rate cuts more, not less, likely.

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