Global stocks move higher after signs of U.S. rate hike

Jobs numbers are well up on 2008 numbers, and unemployment had fallen to 5 per cent. Confidence is up, the housing sector had recovered and business investment is picking up.

But investors have been fretting over the decision for months, with false starts in September and October, driven by fears of the effect of a stronger U.S. dollar on commodity prices, emerging markets and USA economic growth. “We expect the Fed to tighten policy at a gradual pace”.

WALL STREET: US stocks notched their best day in almost four weeks on Wednesday as prospects for higher interest rates in coming months drove up stocks in financial companies.

The Fed has effectively prepared the market for liftoff on December 16, and with CPI remaining steady, almost all the pieces of the liftoff puzzle are in place.

Meanwhile, the dollar, which had run up about 7% against the euro EURUSD, -0.1025% and 3% against the yen USDJPY, +0.03% since mid-October, fell after release of the minutes from the Federal Reserve’s October meeting. The news that the Fed looks to be clearing the decks for its first interest rate hike in more than nine years hasn’t caused too much consternation in the markets.

And subsequent moves next year will also be conditional on further improvement in the USA economy.

The Fed also will have to confront how it judges progress towards its 2 percent medium-term inflation target and whether it waits for clear evidence of a rise in prices or tries to act in advance of one, Lockhart said.

Citigroup’s USA economists agreed, tipping the path of rate rises would be slower than the Fed is now indicating.

“The economy is going into a boom period”, Bullard said.

A gauge tracking 20 exchange rates in developing countries increased 0.8% in the five-days through Friday, advancing from the verge of a record low.

The minutes showed that barring “unanticipated shocks”, rates would rise in December for the first time since 2006. Those interest rates affect the prices of stocks, bonds, real estate and other assets.

Major central banks, including Australia, Europe, Japan and China are still entrenched in easing mode. I would welcome the return of that because to me that’s normal monetary policy.

Ferridge thinks there is another reason for the weaker dollar, and it has to do with the so-called equilibrium, or natural, interest rate.

“The dollar strength continued since earlier this month following the upbeat jobs data, but investors have found a lack of fresh trading cues to prompt them to buy further”, said Minori Uchida, head of Tokyo global markets research at Bank of Tokyo-Mitsubishi UFJ.

Precious metals rose 1 percent on Thursday, rebounding from near six year lows as indications from the U.S. Federal Reserve that it may move cautiously into the rate hiking cycle weighed on the dollar and prompted investors to cover short positions.