Global Stocks Extend Gains on Commodities, Fed Statement

Gold prices rose to a two-week high Thursday after the Federal Reserve left interest rates unchanged at its latest policy meeting.

The focus now shifts to the U.S. Federal Reserve policy decision later on Wednesday, with weaker-than-expected economic data prompting investors to call off bets on a rate hike.

“The case for an increase in the federal funds rate has strengthened”, the US central bank said in a statement following a two-day policy meeting.

December Comex gold futures last traded at $1,331.60 an ounce, up more than 1% on the day, slightly up from where prices were trading ahead of the statement. The central bank said risks to its economic outlook are “roughly balanced”.

That Dr Yellen played it safe made sense, even as she emphasised that the Fed decision to stand pat “did not reflect a lack of confidence in the USA economy”.

“This seems to have been one of the most divisive (Fed) meetings in recent memory”, Ashworth said. Gold is highly exposed to interest rates, particularly in the United States, as higher rates lift the opportunity cost of holding non-yielding assets and boost the dollar, in which gold is priced.

Winer said he remains concerned how much more stocks can increase in the short-term, with the US presidential election coming and third-quarter company earnings reports around the corner. That’s just a quarter-point above the record low of almost zero, where it stood for seven years until the Fed boosted it last December.

BNP Paribas SA (BNP) and Barclays Plc (BCS), are breaking sharply from Wall Street consensus by forecasting that the Federal Reserve will surprise the Street and raise rates at Wednesday’s policy makers meeting. Verizon Communications rose 48 cents, or 1 percent, to $52.35. There’s also the idea that the “neutral” interest rate – consistent with the economy improving in line with its potential – is likely to remain low amid sluggish growth.

The data was released at the same time as the Fed met. The longer-run fed funds rate continues to slide too and is seen at 2.9 per cent now vs 3.0 per cent in June. Fed officials said they expected that economic growth would not exceed 2 percent over the next three years. For 2018, the central bank expects the US economy to grow by 2.0%, unchanged from the previous estimate. Still, some economists cheer the delay, saying higher interest rates may spell more pain for the region, which is already suffering from the structural slowdown in China and subdued global growth. Their outlook implies little contribution from fiscal policy to USA growth.

The central bank has appeared increasingly divided over the urgency of raising rates. Stocks’ returns are about 44% lower when the Fed is hiking rates than usual, according to research by Robert Johnson, CEO of the American College of Financial Services.

This is an honest admission by the head of the world’s most important central bank that the business cycle isn’t developing as they expected. The Fed now expects two rate increases in 2017 and two in 2018, down from three each year in previous forecasts. Both materials and energy stocks do well because investors see them as being safe harbors if inflation picks up, Stovall says.

The betting is that there will be no rate hike now but that the Fed’s statement will hint that a December increase is likely by sounding a more optimistic note about the economy.