Global shares, commodities lifted by hopes of Fed easing

Wed Dec 12, 2012 6:05am EST
 

By Richard Hubbard

LONDON (Reuters) - Equities and commodities edged higher on Wednesday, supported by widespread expectations of further monetary stimulus from the U.S. Federal Reserve when it ends a two-day policy meeting later in the day.

In quiet trade ahead of the Fed's decision, due at 12:30 p.m. ET, safe-haven assets like the dollar, U.S. Treasury bonds and German bunds were also drifting lower with the greenback hitting multi-month lows against some higher yielding currencies.

World markets expect the Fed to expand its current asset purchase scheme, committing to buy $45 billion of U.S. debt a month and extend purchases of mortgage-backed debt, to help sustain the fragile U.S. economic recovery.

"We think that more quantitative easing is coming and this next round will be the most aggressive yet," said Ralf Preusser, head of European rates research at BofA Merrill Lynch Global Research.

Given a general improvement in economic data from the United States and China and signs of stabilization in Europe, the Fed's decision should underpin demand for riskier assets although there is a risk chairman Ben Bernanke uses the subsequent news conference, at 2:15 p.m. ET, to signal a change in the outlook.

"I wouldn't expect too much volatility going into the meeting but afterwards though it will depend on whether they give any guidance on thresholds for unemployment and inflation in the future," said Michael Leister, senior interest rates strategist for Commerzbank.

In any event the meeting's outcome is likely to be quickly overshadowed by developments in talks in Washington designed to avert the "fiscal cliff" of spending cuts and tax increases that will be triggered automatically if no federal budget is agreed..

The squeeze, equivalent to some $600 billion, would take effect in January and is of great concern to the markets because it could tip the giant U.S. economy back into recession and drag down the whole global economy.   Continued...

 
A visitor walks near the logo of the Tokyo Stock Exchange in Tokyo November 5, 2012. REUTERS/Issei Kato