European markets rallied on Thursday after the US Federal Reserve pledged to keep the cost of borrowing at rock-bottom levels for longer than expected, offsetting its decision to begin trimming back its massive $85bn a month stimulus programme.
But US stocks fell in early trading on Thursday, losing some of their gains made immediately after the Fed's announcement, as a more sombre Wall Street was caught off guard by a surprise rise in unemployment benefit claimants.
Emerging markets, which suffered massive capital outflows in the summer over investor jitters about the end of cheap money, also saw stocks fall. The outgoing Fed chairman Ben Bernanke announced on Wednesday a scaling back of the US's bond buying programme to $75bn in January.
But Bernanke stressed that support would only continue to be withdrawn if unemployment carries on falling. Meanwhile he signalled that interest rates were likely to stay low even when unemployment drops below 6.5%. It was a softly-softly approach that soothed markets, sparking a 290-point relief rally on the Dow Jones on Wednesday, a rise of 1.84%.
The mood on Wall Street was less buoyant on Thursday, as it emerged that jobless-benefit claims rose by 10,000 last week to 379,000, a nine-month high.
Some analysts said investors should not be discouraged by the jump in the numbers, as claims are typically volatile over the Thanksgiving and Christmas holiday period with fluctuations in temporary staff.The US unemployment rate fell to a five-year low of 7% in November, an improvement that signalled to markets the stimulus cut was on the agenda.
"After the enthusiastic reaction of the US markets following [Wednesday] night's statement, it is possibly no surprise that having a night to reflect fully on the implications has seen a more measured response from traders in the early trading session," said Alistair McCaig, a market analyst at IG.
"The current levels of these indices mean that the possibility of a Christmas rally will be a more closely-run thing on the [US] side of the Atlantic."
While US stocks were flat, investors rushed to dump five and seven-year US Treasury bonds, amid lingering doubts about the Fed's commitment to low rates.
"The more the Fed leans with the wind in the coming years, the sooner the economy is likely to get back to "interest-rate-neutral" full employment. So even though we think the Fed will tread very carefully and only begin to raise rates in 2015, we still forecast the 10-year yield to drift higher to 3.5% by the end of that year," said John Higgins at Capital Economics.
The Bank of England governor Mark Carney had warned only on Tuesday of the "great risk" associated with unwinding the huge stimulus programmes that the Fed had started five years ago.
The Bank has pumped £375bn into the UK economy since 2009 under the British version of QE. Market watchers thought that the long-awaited Fed announcement was the main factor driving market sentiment in Europe, notwithstanding an agreement among eurozone ministers on a new system to wind up failing banks.
The FTSE100 finished the day up 1.43% at 6,584 points, while Germany's DAX advanced 1.7% to 9,335. "It will be interesting to see if indices around the EU are able to maintain momentum," said McCaig.
"The impression prior to [Wednesday] night's events was that these indices were as dependent, if not more so, to the quantitative easing [money-printing stimulus] process than their US counterparts."
Developing economies saw stocks wobble after the decision to unwind the taper, with the MSCI Emerging Markets index dropping 0.4% to 989.01, but market analysts saw other factors at work.
Turkey is in the throes of a corruption crisis that has led to mass arrests and a stand-off between the police and Recep Tayyip Erdogan's government.
In Thailand, the baht touched a three-month low, as anti-government protesters vowed to march in Bangkok in a campaign to force the prime minister Yingluck Shinawatra from office. In Russia, President Vladimir Putin's promise of a decree to free former oil tycoon Mikhail Khodorkovsky send the Micex up 0.8%.
The Indonesian rupiah hit a fresh five-year low on Thursday, but the Fed's move was welcomed by the deputy governor of bank Indonesia, Perry Warjiyo.
"The announcement provides more clarity for the direction of Fed monetary policy," he told Reuters.
The Indian government has said it is better prepared for the end of US stimulus. India and Indonesia were among "the fragile five", a group of countries that also includes Brazil, Turkey and South Africa, which saw massive outflows of cash over the summer on concerns that the era of cheap money was over.
theguardian.com
But US stocks fell in early trading on Thursday, losing some of their gains made immediately after the Fed's announcement, as a more sombre Wall Street was caught off guard by a surprise rise in unemployment benefit claimants.
Emerging markets, which suffered massive capital outflows in the summer over investor jitters about the end of cheap money, also saw stocks fall. The outgoing Fed chairman Ben Bernanke announced on Wednesday a scaling back of the US's bond buying programme to $75bn in January.
But Bernanke stressed that support would only continue to be withdrawn if unemployment carries on falling. Meanwhile he signalled that interest rates were likely to stay low even when unemployment drops below 6.5%. It was a softly-softly approach that soothed markets, sparking a 290-point relief rally on the Dow Jones on Wednesday, a rise of 1.84%.
The mood on Wall Street was less buoyant on Thursday, as it emerged that jobless-benefit claims rose by 10,000 last week to 379,000, a nine-month high.
Some analysts said investors should not be discouraged by the jump in the numbers, as claims are typically volatile over the Thanksgiving and Christmas holiday period with fluctuations in temporary staff.The US unemployment rate fell to a five-year low of 7% in November, an improvement that signalled to markets the stimulus cut was on the agenda.
"After the enthusiastic reaction of the US markets following [Wednesday] night's statement, it is possibly no surprise that having a night to reflect fully on the implications has seen a more measured response from traders in the early trading session," said Alistair McCaig, a market analyst at IG.
"The current levels of these indices mean that the possibility of a Christmas rally will be a more closely-run thing on the [US] side of the Atlantic."
While US stocks were flat, investors rushed to dump five and seven-year US Treasury bonds, amid lingering doubts about the Fed's commitment to low rates.
"The more the Fed leans with the wind in the coming years, the sooner the economy is likely to get back to "interest-rate-neutral" full employment. So even though we think the Fed will tread very carefully and only begin to raise rates in 2015, we still forecast the 10-year yield to drift higher to 3.5% by the end of that year," said John Higgins at Capital Economics.
The Bank of England governor Mark Carney had warned only on Tuesday of the "great risk" associated with unwinding the huge stimulus programmes that the Fed had started five years ago.
The Bank has pumped £375bn into the UK economy since 2009 under the British version of QE. Market watchers thought that the long-awaited Fed announcement was the main factor driving market sentiment in Europe, notwithstanding an agreement among eurozone ministers on a new system to wind up failing banks.
The FTSE100 finished the day up 1.43% at 6,584 points, while Germany's DAX advanced 1.7% to 9,335. "It will be interesting to see if indices around the EU are able to maintain momentum," said McCaig.
"The impression prior to [Wednesday] night's events was that these indices were as dependent, if not more so, to the quantitative easing [money-printing stimulus] process than their US counterparts."
Developing economies saw stocks wobble after the decision to unwind the taper, with the MSCI Emerging Markets index dropping 0.4% to 989.01, but market analysts saw other factors at work.
Turkey is in the throes of a corruption crisis that has led to mass arrests and a stand-off between the police and Recep Tayyip Erdogan's government.
In Thailand, the baht touched a three-month low, as anti-government protesters vowed to march in Bangkok in a campaign to force the prime minister Yingluck Shinawatra from office. In Russia, President Vladimir Putin's promise of a decree to free former oil tycoon Mikhail Khodorkovsky send the Micex up 0.8%.
The Indonesian rupiah hit a fresh five-year low on Thursday, but the Fed's move was welcomed by the deputy governor of bank Indonesia, Perry Warjiyo.
"The announcement provides more clarity for the direction of Fed monetary policy," he told Reuters.
The Indian government has said it is better prepared for the end of US stimulus. India and Indonesia were among "the fragile five", a group of countries that also includes Brazil, Turkey and South Africa, which saw massive outflows of cash over the summer on concerns that the era of cheap money was over.
theguardian.com
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