Asian shares jump, yields and dollar fall as Fed stuns

Fed stuns by not tapering in protest against higher market rates; Asian shares, currencies benefit as borrowing costs fall globally 

Sydney: Asian shares and currencies rallied broadly on Thursday after the Federal Reserve stunned markets and decided not to taper its asset-buying programme, sending US bond yields and the dollar into a tailspin.

With US stocks at a fresh record high, MSCI’s broadest index of Asia-Pacific shares outside Japan jumped 0.9% to its highest in almost four months.

Australia’s main index gained 1.1% to a five-year high and Japan’s Nikkei managed to brush aside a rise in the yen to climb 0.8% to a two-month peak.

The prospect that US rates could stay low for longer was further underlined by news from the White House that noted-dove Janet Yellen was the front-runner to take over the Fed when Ben Bernanke steps down.

“The Fed today chose an extremely dovish course of action,” said Michelle Girard, a senior US economist at RBS. “It did not just postpone tapering for three months—today’s developments open the door for a longer-lasting QE3 programme.”

“This, in turn, may open the door for a later start date for rate hikes.”

All of which was a major relief to emerging markets, which have been suffering as higher yields in the rich world attracted away much-needed foreign capital.

“The surprise from the Fed means that bond yields are going to be lower than we previously expected by the end of the year,” said Tony Morriss, head of interest rate research at ANZ.

“This is good news for a renewed search for yield, credit spread performance and easing of some selectively intense pressure in EM markets.”

Amit kumar pandey

PGDM-1ST

FROM- THE TIMES OF INDIA (NEWS PAPER)