US stocks rallied on Wednesday after the Federal Reserve indicated that the pace of interest rate hikes will be slower than previously expected. The Fed dropped from its statement the reference to being ’patient’ before raising interest rates, but Fed Chair Janet Yellen told at the conference that the change didn’t mean the Fed was in a rush to hike interest rates. Officials cut their median estimate for the federal funds rate at the end of 2015 to 0.625 percent, down from 1.125 percent in December forecasts. Policy makers also downgraded US growth outlook: according to new projections US economy is expected to grow 2.3 to 2.7 percent this year and next, down from the 3 percent forecast for both years made in December. The dollar fell against major currencies. Today at 13:30 CET Initial Jobless Claims for the week ended March 14 and Continuing Claims for the week ended March 7 will be released in US. The tentative outlook is neutral for the dollar. At 15:00 CET the Philadelphia Fed’s Business Outlook March Survey results will be published. The tentative outlook is positive. At the same time the Conference Board Leading Indicator for February will be released, which is expected to remain unchanged.
European stocks rose on Wednesday as UK energy shares climbed after the government presented a budget outline including investment and tax cuts for North Sea oil industry, and construction and materials shares advanced on expectations of a merger deal between French leading construction company Lafarge and Switzerland’s Holcim. The Stoxx Europe 600 rose 0.3%. Euro climbed to its highest level in eight days after the Fed’s statement indicated that it is in no hurry to hike interest rates. Automaker shares fell as investors took profits after the sector’s 30 percent rally this year. Germany’s DAX 30 lost 0.5 % as BMW fell 4.2 % after announcing lower expected earnings than forecasts a year ago.
Nikkei fell today as investors took profits on financial shares on concerns that falling yields on Japanese government bonds after the dovish Fed statement may weaken banking sector. The yen gained one percent against the dollar following the Fed's policy meeting. Three more public funds are expected to announce on Friday they will start investing in Japanese stocks with a common model portfolio in line with asset allocation of the trillion-dollar Government Pension Investment Fund. That would provide additional 3.58 trillion yen ($30 billion) support for Japanese stocks. It is worth noting that GPIF purchases of stocks instead of bonds has helped drive Nikkei to 15-year highs this week, and Nikkei has risen more than eight percent in the past month.
Oil prices rose on Wednesday as the dollar weakened against major rivals after the Federal Reserve statement. The rebound in oil prices will likely be short- lived as no fundamental change has taken place to address the global oversupply issue.
Gold prices advanced on Wednesday after the Fed dovish statement. A major change is expected in gold market tomorrow when the London Bullion Market Association will launch an electronic auction process operated by the ICE Benchmark Administration after the London Gold fix is discontinued. As China is expected to participate directly in setting the new price fix, the price differences between Shanghai and London markets are expected to smooth out.