Stocks and gold surge as Fed maintains QE

NEW YORK (Sept 19)   US stockmarkets ended yesterday’s session at record highs and other global equity indices have posted strong gains after the Federal Reserve decided to avoid slowing its quantitative easing programme.

The shock decision by the central bank also caused gold to soar and the dollar to tumble as investors were told the US economy was not strong enough for stimulus to be withdrawn.

The S&P 500 rose 1.22 per cent to 1,725.52 while the Dow Jones climbed 0.95 per cent to 15,676.94, both reaching new highs. In Japan, the Nikkei 225 added 1.80 per cent to 14,766.18 and Hong Kong’s Hang Seng rose 1.67 per cent to 23,502.51.

In London, the FTSE 100 joined other European equity markets in surging immediately after opening. As of 1012 BST, the FTSE had gained 1.42 per cent to reach 6,651.93 while the Euro Stoxx 50 was up 1.22 per cent at 2,944.52.

Markets were cheered by news that the Fed decided to maintain its bond-buying programme at $85bn-a-month rather than start to taper the programme, which was widely expected to happen.

Commentators had predicted Fed chairman Ben Bernanke would knock between $10bn and $15bn a month off the programme

Following its two-day monetary policy meeting, the central bank’s federal open market committee said it would need to see “more evidence that progress will be sustained” in the US economy before it begins to slow QE.

Gold witnessed its largest one-day jump in four years after gaining more than 4 per cent to hit $1,364 per ounce. Meanwhile, the dollar fell to a seven-month low against the euro.

Capital Economics chief US economist Paul Ashworth says: “The Fed’s decision to maintain its asset purchases at $85bn per month was, given that most commentators expected a modest reduction in the pace today, unsurprisingly bond and equity positive.

“We wonder, however, whether the longer lasting reaction will be increased volatility in markets, as the Fed’s communications become even more confused.”