As expected, the Fed left interest rates unchanged yesterday. From Reuters:
The U.S. Federal Reserve on Wednesday kept its benchmark interest rate steady for a third meeting in a row, predicting moderate economic growth ahead with some reason to expect easing price pressures.
Bonds reacted positively to the announcement.
The statement seemed to reassure investors, despite being little changed from the previous one. In futures trading, the chances the Fed will lift rates another quarter percentage point by January dropped to 10 percent from 16 Tuesday.
Bond prices rallied in relief that the Fed had not struck a more hawkish tone on inflation as many market observers had suggested was possible.
Economic data yesterday also helped bonds.
There were new signs of economic cooling even before the Fed wrapped up its two-day meeting. A realtors' group reported U.S. sales of existing homes fell for a sixth straight month in September and median prices were down from a year ago.
But stocks also moved up yesterday.
Stock prices closed modestly higher, influenced more by corporate earnings reports than by the widely anticipated Fed decision. The Dow Jones industrial average gained 6.80 points, to close at a record 12,134.68.
European stocks also rose, helped by rising business confidence. Bloomberg reports:
Business confidence in Germany and France unexpectedly rose in October as lower oil prices and exports to Asia brightened the outlook for economic growth in Europe. Stocks rose to the highest in five years and bonds fell.
The Ifo institute in Munich said today its index climbed to 105.3 from 104.9 in September. Economists expected a decline to 104.5, the median of 39 forecasts in a Bloomberg News survey showed. In France, a gauge of optimism advanced to 108 from 106 in September. Germany and France together account for more than half the euro region's economy...
The Stoxx 600 index rose as much as 0.4 percent to 356.35 points, the highest since February 2001. Yields on two-year German government notes, among the securities most sensitive to the outlook for interest rates, climbed 2 basis points to 3.727 percent at 12:43 p.m. in Frankfurt...
In Italy, the Isae institute said today its index of confidence remained near a four-month high, slipping to 97.1 from 97.3 in September. That exceeded the median forecast of 97 in a Bloomberg survey. In France, economists had expected a reading of 107, according to a separate survey.
That should boost chances of further ECB rate hikes. Not that ECB officials weren't already thinking about it. From another Bloomberg report:
European Central Bank council member Axel Weber said the bank may need to continue raising interest rates next year to ensure it doesn't over-stimulate the economy of the dozen nations sharing the euro.
And this is despite inflation looking likely to stay low in Germany in October. From AFX/Forbes:
Consumer prices in Germany rose 0.2 pct in October from September and were up 1.2 pct from a year earlier, according to preliminary data from the Federal Statistics Office.
Of the big stock markets, only Japan's fell yesterday, the Nikkei 225 falling 0.5 percent to close at 16,699.30. It was not for want of good news, though. From AFP/CNA:
Japan's trade surplus hit an 18-month high in September thanks to strong exports of fuel-efficient cars, steel and electronic products, the government said.
The trade surplus swelled to a bigger-than-expected 1.01 trillion yen (8.50 billion dollars), up 6.9 percent from a year earlier and above one trillion yen for the first time since March 2005, the finance ministry said.
Exports gained 15.3 percent from a year earlier to 6.83 trillion yen while imports climbed 16.9 percent to 5.82 trillion yen, largely because of high oil prices, the ministry said in a statement.