Calmer backdrop to market as Fed concerns ease

Stocks remain solid as Fed tightening expectations ease following downward US growth revision

Associated Press
Asia stocks boosted by Japan, US indicators

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A man walks by an electronic stock board of a securities firm in Tokyo, Thursday, June 27, 2013. Stock markets from Sydney to Shanghai extended gains for a second day Thursday after the U.S. said quarterly growth may be weaker than expected, raising investors' hopes that the Federal Reserve would delay plans to wind down its stimulus program.(AP Photo/Koji Sasahara)

LONDON (AP) -- The calmer mood that has prevailed in financial markets this week continued Thursday, though the upcoming end to the half-year may prompt some volatility in trading.

Markets have had a better week after suffering big losses and swings earlier in the month, and that was helped by figures showing the U.S. economy grew at only a 1.8 percent annualized rate in the first quarter, instead of the previous estimate of 2.4 percent.

The Fed has indicated that it is inclined to start reducing the financial assets it buys in the markets later this year — so-called tapering — and possibly end the stimulus next year. But with economic growth still sub-par, analysts said the central bank may have to wait for a little longer. That is positive for stocks as investors have become conditioned to the extra liquidity the stimulus has provided markets over the past few years.

"The market welcomed yesterday's downward revision given the implication that it should mean that the Fed decides not to taper too quickly," said Jane Foley, an analyst at Rabobank International.

"A measure of calm has descended on the markets over the past session or so, though it is likely that investors will remain jittery in the coming weeks," she added.

In Europe, the FTSE 100 index of leading British shares was up 0.4 percent at 6,191 while Germany's DAX rose 0.1 percent to 7,952. The CAC-40 was also 0.1 percent higher at 3,730.

Wall Street was poised for a solid opening following a run of positive sessions — Dow futures were 0.2 percent higher while the broader S&P 500 futures rose 0.3 percent.

Given that the markets continue to be focused on the Fed's policies, weekly jobless claims figures and pending home sales data later in the day are likely to garner attention.

Also, trading may increasingly be driven by calendar effects as some investors look to make their portfolios look better for the end of the half-year. Even after the volatility over the past few weeks, stocks have had a pretty strong first half to the year.

"Traders may also be inclined to start undertaking a degree of position keeping in the near term — tomorrow marks the end of the month, quarter and mid-point of the year," said Fawad Razaqzada, market strategist at GFT Markets.

Earlier in Asia, markets were also buoyed as interbank lending rates in China continued to ease after a pledge earlier in the week by authorities to shore up banks facing cash shortfalls.

The central bank had allowed rates that banks pay to borrow from each other to soar last week, part of an attempt by Beijing to clamp down on massive credit in the informal lending industry.

Fears of a credit crisis in the world's second-biggest economy had contributed to a rout in global markets that ended when policymakers in China softened their stance with the promise to provide "liquidity support" if needed.

Japan's Nikkei 225 jumped 3 percent to close at 13,213.55 and Hong Kong's Hang Seng gained 0.5 percent to 20,440.08. South Korea's Kospi surged 2.9 percent to 1,834.70. Australia's S&P/ASX 200 added 1.7 percent to 4,811.30, a day after Julia Gillard was ousted as Prime Minister to be replaced by Kevin Rudd.

"He will be the person who will try to rescue Labour's election campaign, three months before Australians head to the polls, a move that appears to have received the approval of the markets," said Craig Erlam, market analyst at Alpari.

Trading in the currency markets was steady, with the euro flat at $1.3017 and the dollar 0.4 percent higher at 98.14 yen.

In the commodity markets, the mood was also calmer, notably with regard to gold, which slumped Wednesday to a near three-year low. It was down only 40 cents at $1,229 an ounce. Oil prices were steady too, with the benchmark New York rate up 35 cents at $95.85 a barrel.

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