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Gentle Fed Welcomed on Wall Street, Around Globe

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December 18, 2014

Stock indicators nod toward a strong early performance after sizeable gains Wednesday followed a dovish Federal Reserve statement and a broad adjustment across most markets, including commodities. Major U.S. stock averages logged gains topping 1% a day ago and global equities markets rallied overnight as the Fed indicated the interest-rate hikes likely to kick in next year will be slow and steady.

Also helping: suffering energy stocks rebounded as crude looks (at least short term) to have formed a base near $56 a barrel and is threatening $60. Grains, gold and other commodities traded up significantly overnight, another key sign that markets could be in a full-fledged rally. Cooler nerves were reflected in a close for the CBOE Volatility Index (VIX) under 20; VIX could drop again into week’s end. Clearly, some of the market’s move looked to be a short-squeeze aggravated by this week’s “quadruple witching” expiration of certain stocks, futures, and options. And, an important note of caution: bonds sold off, yes, but certainly not to the degree that might be expected. Keep a watch on market-set interest rates.

“Can Be Patient” There’s the word change. The Fed dropped its “considerable time” language that had described how long interest rates would remain near historic lows. The crew now suggests it “can be patient” with the timing of its first rate hike. Chair Janet Yellen in her press conference suggested a move is not likely until at least two meetings into the new year. All told, it buys the Fed some wiggle room but it’s really just the penciled-in calendar that most of the Street was operating on a few months ago—a possible rate hike late spring-early summer. Markets cheered this little bit of clarity, even though much of the message is still pretty vague. Yellen warned markets not to expect the “measured pace” of tightening seen from 2004 to 2006, stressing that the Fed’s moves will be data-dependent. The guessing game may quickly turn from “when?” to “how much?”

Ruble Rests. Russia’s ruble steadied against the dollar after President Vladimir Putin said at a regular press conference that his currency will stabilize amid current economic headwinds. He stressed that “external conditions” (which most observers know to mean the trade sanctions imposed by the West) are pushing Russia into reforms that would make the economy more efficient. Early Thursday, a buck bought 61.99 rubles compared with 62.51 late on Wednesday.

Bullish News on the Tech Front. Oracle (ORCL) is an early gainer after the software company late Wednesday beat Street expectations with its fiscal Q1 results and offered an upbeat outlook. The tech space could get additional support from Jabil Circuit (JBL) as the electronics components firm topped expectations with its Q1 profit and sales and said the quarter now underway looks to exceed estimates.

Good trading,
JJ
@TDAJJKinahan

NC
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