Thursday, December 17, 2015

European shares seen surging after Fed's move

European shares headed for a sharp rise on Thursday, tracking gains on Wall Street and Asia, after the US Federal Reserve’s move to raise interest rates for the first time in nearly a decade was seen as a sign of confidence in the world’s biggest economy.

The Fed made clear that the 25-basis point rate hike was a tentative beginning to a “gradual’’ tightening cycle, and that in deciding its next move it would put a premium on monitoring inflation, which remains mired below target.

“The fact is, the market would have found inspiration that there is no pre-set path for future rate hikes and the word ‘gradual’ was used liberally,’’ Chris Weston, chief market strategist at IG said.

The Fed’s policy statement noted the “considerable improvement’’ in the US labour market, where the unemployment rate has fallen to 5 per cent, and said policymakers are “reasonably confident’’ inflation will rise over the medium term to the Fed’s 2 per cent objective.

“The rates are still exceptionally low and monetary policy is still being set with a view to encourage growth, not rein growth in,’’ Christopher Mahon, director of asset allocation research at Baring Asset Management, said in a note.

Futures for the Euro STOXX 50 index, Germany's DAX, France's CAC and Britain's FTSE 100 index were up 1.1 to 1.5 percent by 0711 GMT.

Resource-related stocks will also be in focus as prices of key industrial metals fell following a rally in the dollar after the Fed rate hike, while crude oil prices dropped also due to a surprise build in US inventories.

US share indexes rose 1.3 to 1.5 per cent in the previous session, while Japan’s Nikkei share average and MSCI’s broadest index of Asia-Pacific shares outside Japan rose 1.6 per cent and 0.7 per cent, respectively on Thursday.

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