FOMC greenlights equity rally

FOMC taper lifts Wall Street

A fence-sitting FOMC which announced a long-overdue tapering, but stuck to its no rate hikes and transitory inflation line was enough to greenlight another rally on Wall Street overnight, which was happy to keep the momentum of the impressive Q3 earnings season going. It was another record close as the S&P 500 rose by 0.65%, with the rate-sensitive tech-heavy Nasdaq leaping 1.04% higher. The Dow Jones tracing out a more modest 0.29% gain. US yields firmed overnight but that appears to have weighed more on the Dow Jones while the FOMO gnomes feasted on the S&P and Nasdaq.

The FOMC and Wall Street’s reaction after has been enough to greenlight a positive day in a holiday-thinned Asia. The Nikkei 225 has jumped by 0.92% with the South Korean Kospi rising by 0.77%. China has ignored another liquidity withdrawal by the PBOC, with pent-up demand seeing the Shanghai Composite rise 0.65% and the CSI 300 leap 1.0% higher. Hong Kong is recording some decent gains as well, rising by 0.85%.

In regional Asia, Singapore and Kuala Lumpur are closed with Taipei climbing 0.40% while Bangkok is unchanged with Jakarta rising by 0.90%. In Australia, markets are rebounding after a tough week so far. The ASX 200 and All Ordinaries climbing by 0.35%. The FOMC decision should see European markets open higher today, while it is hard to see anything other than a huge drop in Initial Jobless Claims derailing the positive momentum in US markets this evening.

The rest of the week will be busy, culminating with Friday’s US Non-Farm Payrolls data. Overnight, ADP Employment surged higher, while the US ISM Non-Manufacturing PMI and sub-indices suggest that the services sector is back with higher activity and costs, after a Q3 delta-induced slowdown. The risks are now skewed towards the Non-Farms finally aligning with signals elsewhere in the US economy, after a few weak readings. A number north of 500K could cause equity markets to reconsider ignoring the implications of the Fed taper. Similarly, a low print will provide fuel for the lower-for-longer monetary party in equities.

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