US stock indices have risen sharply for a second successive day.
By Peter Martin
Friday, January 9, 2015
This has pushed the Dow Jones into positive territory for the year, after indications from officials at the Fed and the ECB lean in the direction of continued accommodative monetary policy.
After the market closed last night President of the Federal Reserve Bank of Chicago Charles Evans expressed concerns that inflation will remain below target until 2018 and that any rate hikes should be deferred until 2016. This is a minority view at the Fed, with most officials viewing a 2015 rate rise as appropriate, but Mr Evans suggested a possible option could be to make the rise only slight should it occur sooner rather than later. ‘It is a trade-off,’ he said, ‘As to whether or not we delay for quite a long time before the first lift-off, or lift-off begins a little bit earlier than maybe I would think, but with a shallow enough path of increases so that the overall path still remains adequately accommodative.’ These words provide encouragement that the Fed remains not only undecided on precisely when to tighten, but also focussed on ensuring the economy remains well-supported by monetary policy.
ECB ready to act says President Draghi
Switching over to eurozone monetary policy, ECB President Mario Draghi re-iterated that the central bank’s Governing Council stands ready to implement QE if required in a letter to a Member of the European Parliament. Mr Draghi wrote that ‘Should it become necessary to further address risks of too prolonged a period of low inflation, the Governing Council is unanimous in its commitment to using additional unconventional instruments within its mandate’ and added that the measures could include purchasing sovereign bonds.
Mr Draghi’s comments helped spark a massive rally in European stock markets that saw the German DAX and the French CAC40 more than 3% higher. This was followed by a sizeable rally in New York, with the Dow Jones gaining 303 points or 1.73% to stand at 17,888 by mid-afternoon, while the S&P 500 Index rose 1.81% to 2062.6.
Labor market gains
Macroeconomic data has also been supportive: initial jobless claims improved by 4000 last week to 294,000, taking the four-week moving average down a touch to 290,500. The four-week moving average looks favorable in comparison to where it was standing a month ago, which bodes well for tomorrow’s closely-watched employment situation report.
Non-farm payrolls are expected to have grown by 245,000 in December, following November’s bumper addition of 321,000 and the unemployment rate is expected to improve to 5.7% from 5.8% in the month prior.
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