SYDNEY- Share markets firmed on Thursday after the US Federal Reserve engineered an orderly start to unwinding its massive stimulus program, though doubts about the inflation outlook did push up longer-dated bond yields.
“Remember that tapering is not tightening,” said Kerry Craig, global market strategist at J.P. Morgan Asset Management, noting the Fed’s balance sheet would still expand by around $400 billion over the next eight months.
“This is still a very accommodative policy environment and one that will support the growth outlook in the quarters ahead and the performance of risk assets like equities and credit.”
Anxious eyes now turn to the Bank of England which may kick off a rate hike cycle later in the day with uncertain implications for debt markets globally.
For now, equity investors were content that the Fed was in no rush to remove the policy punch bowl and Nasdaq futures added 0.2 percent to another record high. If sustained, it would be the ninth straight session of gains.
S&P 500 futures edged up 0.1 percent, while Japan’s Nikkei climbed 0.8 percent to its highest in a month.
MSCI’s broadest index of Asia-Pacific shares outside Japan crept up 0.5 percent. The index has been burdened by a spike in new coronavirus cases in China, which threatens to curb consumer spending in an already slowing economy.
Strong readings on US services and employment underpinned the better mood, elsewhere.
As expected, the Fed announced it would trim its bond buying by $15 billion a week from this month, while leaving open the option to quicken or slow the pace as needed.
Fed Chair Jerome Powell did sound slightly less sure inflationary forces would prove to be fleeting, enough to hit longer-term bonds and bear steepen the yield curve.
“Overall, we didn’t get anything that should imply higher market pricing of hikes than what we have now,” said Jan Nevruzi an analyst at NatWest Markets.
Fed futures imply a first hike to 0.25 percent by June with another to 0.5 percent by the end of 2022.
“While not an ultra-dovish meeting, the result was still a far cry from some of the more stunning hawkish surprises seen recently from the likes of the Bank of Canada,” added Nevruzi.
The Canadian and Australian central banks have caused turmoil in their bond markets in the last couple of weeks by abruptly changing tack on policy. — Reuters
