Thursday, Oct 30, 2008
World stocks and the euro rallied on Thursday, driven by bargain-hunting and sweeping gains in emerging markets after the Federal Reserve cut interest rates and opened swap lines to four developing economies.
Investors saw a return to risk appetite and the carry trade and renewed weakness in the dollar after the Fed chopped half a point off the fed funds rate to 1.0 percent and left the door open to further cuts.
The Fed also opened up dollar liquidity aid beyond traditional markets, with four new $30 billion currency swap lines with Brazil, Mexico, South Korea and Singapore.
“The Fed’s statement has paved the way for further rate cuts …Its policy outlook is softer, and is pushing the dollar lower,” said David Tinsley, economist at nabCapital.
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“The Fed is doing its bit to shore up emerging economies, so that’s improving risk appetite toward those currencies.”
The MSCI world equity index rallied by nearly 3 percent, driven by gains of over 9 percent in the benchmark emerging equities index.
Emerging equities have bounced by 24 percent from four-year lows set on Tuesday.
They got a further boost from the International Monetary Fund’s approval of a short-term financing facility for emerging market economies that have a good economic track record but are having difficulties accessing credit.
The euro rose 1.5 percent to $1.3158 within a broad rally toward higher-yielding currencies, but the U.S. currency gained 1 percent to 98.46 against the low-yielding yen.
The FTSEurofirst 300 index of leading European shares rose 0.67 percent, extending its rally into a third day, helped by rising commodity prices.
China, Hong Kong, Norway and Taiwan also cut rates in the past 24 hours, and pressure mounted on the Bank of Japan to reduce rates after it meets on Friday. Asian equity markets surged, with Japan’s Nikkei average up 10 percent.