Thursday 21:05. The prospect of continued liquidity support from the Federal Reserve helped US stocks edge further into record territory as the markets digested comments from Janet Yellen, the nominee for chair of the US central bank.
At her confirmation hearing before the Senate banking committee, Ms Yellen mounted a robust defence of the Fed’s quantitative easing programme, saying it had made a “meaningful contribution to economic growth”.
Analysts said she had steered a non-committal path between concerns over monetary over-accommodation, and the risks of premature removal of monetary stimulation.
“There were however two rather overtly dovish comments,” said Nick Beecroft, chairman of Saxo Capital Markets. “Firstly, she was quite sanguine about the level of leverage in the economy; and secondly, she didn’t feel that there was a stock market bubble.
“No standout hints on the timing of tapering or strengthening of forward guidance – she stuck diligently to the Bernanke mantra that monetary policy decisions will continue to be data-dependent.”
In New York, the S&P 500 equity index rose 0.5 per cent to a record closing high of 1,790. The Nasdaq Composite recovered from an early drop to finish 0.2 per cent higher, in spite of a sharp fall for Cisco Systems after the company unveiled disappointing figures.
There was a similarly bullish mood in Europe where the FTSE Eurofirst 300 rose 0.8 per cent, its
biggest one-day gain for a month, while the Nikkei 225 Average in Tokyo jumped 2.1 per cent to its highest close since May.
US government bonds also rallied sharply as Ms Yellen spoke. The yield on the 10-year Treasury was down 5 basis points at 2.70 per cent, while the five-year yield fell 6bp to 1.33 per cent. German and UK sovereign debt found additional support from weak economic data releases.
Gold was another beneficiary of expectations for continued Fed asset buying. The metal was up $9 to $1,287 an ounce.
The dollar held steady against a weighted basket of currencies, although it rallied strongly against the yen – spending much of the European session back above the Y100 level – as a sharp slowdown in Japanese growth fuelled speculation that the country could adopt more stimulus measures.
Third-quarter GDP came in 1.9 per cent, down from 3.8 per cent in the previous three-month period, with the slowdown primarily driven by weaker private consumption and exports, analysts said.
But Flemming Nielsen, senior analyst at Danske Bank, said the slowdown should prove temporary.
“Retail sales and auto sales have been strong in recent months suggesting private consumption is poised to rebound in the fourth quarter,” he said.
“The Bank of Japan is unlikely to add further stimulus. It is important to remember that the BoJ is already easing monetary policy very aggressively and, despite a strong recovery, tapering will not be on the agenda in the near future.”
The dollar rose 0.8 per cent to Y99.98, off the day’s peak of Y100.14.
The euro also came under some pressure after data showed that the pace of eurozone growth had slowed to just 0.1 per cent in the third quarter from 0.3 per cent previously.
“The recovery certainly does not look strong enough to get inflation back close to the European Central Bank’s price stability goal in the foreseeable future,” said Nick Kounis, head of macro research at ABN Amro.
“The weak growth figures therefore keep further ECB action very much on the table.”
The single currency was down 0.2 per cent at $1.3459, having risen to within a whisker of $1.35 earlier in the session, while the German Bund yield fell 4bp to 1.70 per cent.
The 10-year gilt yield slipped 4bp to 2.76 per cent as weak UK retail sales data fuelled worries that, in spite of recent signs of economic recovery, the consumer sector remained fragile.
Emerging market assets found support from speculation that the Fed would maintain its accommodative policy stance.
The Indonesian rupiah and the Indian rupee were both firmer against the dollar while the Jakarta and Mumbai stock markets rose 1.5 per cent and 1 per cent, respectively.
Among industrial commodities, copper inched up 0.1 per cent in London to $6,992 a tonne after earlier touching a three-month low of $6,940. Brent crude settled at $108.54 a barrel, up $1.42.