While you were sleeping: Bernanke confidence boost

Thursday 25th February 2010

Ben Bernanke gave a positive outlook on the US economy and reaffirmed that interest rates would remain near historic lows for an “extended period”, bolstering equities and bonds.

Bernanke told Congress that while monetary policy would need to be tightened at some point, the “nascent” rebound in the world’s biggest economy still required low interest rates for an extended period.

“Although the federal funds rate is likely to remain exceptionally low for an extended period, as the expansion matures, the Federal Reserve will at some point need to begin to tighten monetary conditions to prevent the development of inflationary pressures.

“Notwithstanding the substantial increase in the size of its balance sheet associated with its purchases of Treasury and agency securities, we are confident that we have the tools we need to firm the stance of monetary policy at the appropriate time.”

Bernanke also said that price pressures were not expected to force the Fed’s hand anytime soon.

“Inflation is expected to remain subdued, with consumer prices rising at rates between 1 and 2% in 2010 through 2012. In the longer term, inflation is expected to be between 1-3/4 and 2%, the range that most FOMC participants judge to be consistent with the Federal Reserve's dual mandate of price stability and maximum employment.”

In late morning trading on Wall Street, the Dow Jones Industrial Average was 0.75% higher, the Standard & Poor’s 500 Index was 0.75% higher and the Nasdaq Composite had gained 0.94%.

Among the advancers were JPMorgan Chase, Bank of America and Autodesk. The S&P technology sector index rose 1.2%, while the BKW bank index .BKX gained nearly 2%.

The Chicago Board Options Exchange Volatility Index, or VIX, which is known as Wall Street’s ‘fear gauge’ fell 3.18% to 20.69.

The Dow Jones Stoxx 600 ended up 0.2% at 247.28. Across Europe, the UK’s FTSE 100 ended up 0.52%, France’s CAC 40 edged up 0.23% and Germany’s DAX added 0.2%.

Among the top performers were Rhodia SA, Fresenius Medical Care AG, Vallourec SA and Henderson Group Plc. Among the laggards were Daimler, Bilfinger Berger, CSM NV, Travis Perkins Plc and Marine Harvest ASA.

The Dollar Index, which measures the greenback against a basket of six major currencies, fell 0.34% to 80.64.

The greenback slipped after Bernanke spoke, as investors reassessed the timing of higher interest rates.

The euro rose as high as US$1.3626 and last traded at US$1.3600, up about 0.7%. The dollar fell 0.3% to 89.96 yen.

Sterling rose 0.2% to US$1.5439 after having tumbled on Tuesday when the Bank of England left the door open to more emergency measures and issued a downbeat economic outlook.

The US dollar fell 0.3% against its Canadian counterpart to C$1.0528 while the Australian dollar rose 0.5% to US$0.8939.

The yield on the US 30-year bond fell two basis points, or 0.02 percentage point, to 4.61% in New York, according to BGCantor Market Data. The US will offer US$42 billion of five-year notes today.

The five-year notes being sold today yielded 2.38% in pre-auction trading, compared with 2.37% at the prior sale of the securities on January 27, according to Bloomberg. Investors bid for 2.80 times the amount on offer at last month’s sale, compared with an average of 2.48 at the past 10 auctions.

The Reuters/Jefferies CRB Index, which tracks 19 raw materials, rose 0.61% to 274.05.

U.S. crude for April was up 88 cents to US$79.74 by 1619 GMT while London ICE Brent was up 74 cents at US$7.99. U.S. crude touched a high of US$80.13 while Brent reached US$78.42.

Spot gold was US$1100.45 at 1533 GMT, against US$1102.95 late in New York on Tuesday.

The China Daily reported on Wednesday, citing an unnamed official from the China Gold Association, that China was unlikely to buy 191.3 tonnes of gold being offered for sale by the International Monetary Fund.

Businesswire.co.nz

Comments from our readers

No comments yet