Stocks stable and gold slips after Fed expands dollar liquidity

Global stocks were mixed and gold lost ground after the US Federal Reserve expanded measures to prevent an international shortage of dollars in the face of the coronavirus pandemic.

Hong Kong’s Hang Seng rose 1.1 per cent while Australia’s S&P/ASX 200 gained 0.7 per cent. Japan’s benchmark Topix fell 0.5 per cent and China’s CSI 300 index of Shanghai- and Shenzhen-listed stocks slipped 0.1 per cent.

Overnight on Wall Street, the S&P 500 closed 1.2 per cent higher while the tech-focused Nasdaq rose 1.4 per cent. This came after the Fed held off on any significant changes to monetary policy but extended measures, such as swap lines with other central banks, to guard against sources of dollar funding drying up as companies and investors hang on to the reserve currency.

But European equity markets did not pick up the rally as investors looked past the Fed’s latest policy move to a warning by the central bank that the US economic recovery “will depend significantly” on the course of Covid-19. The European Stoxx 600 opened flat while London’s FTSE 100 rose 0.1 per cent, Germany’s Dax fell 0.5 per cent and France’s CAC 40 slid 0.2 per cent.

“The pace of the recovery looks like it has slowed since the cases began that spike in June,” Jay Powell, Fed chair, told a press conference in reference to a US surge in Covid-19 cases.

“It’s too early to tell both how large that is and how sustained it will be. We just don’t know yet.”

The move towards extending dollar liquidity kept the US currency bouncing around two-year lows. The dollar index, which tracks the currency against those of trading partners, hit a reading of 93.5 by 7am in London, having declined to 93.3 overnight.

Although the Fed did not make any new policy moves on Thursday, investors increasingly expect the US central bank to loosen monetary policy further in September.

“We think changes to the forward guidance will also be announced at the September meeting,” strategists at TD Securities wrote in a research note. “In any event, dovish communications changes appear fairly imminent, and rates are unlikely to be raised for a very long time.”

Gold, which has rallied to all-time highs in recent sessions, fell 0.5 per cent to $1,957 per troy ounce. The yellow metal frequently serves as a haven in times of uncertainty.

The yield on the US 10-year Treasury bond, which influences the returns investor seek on equities, declined to 0.56 per cent from 0.58 per cent just after the Fed meeting. Bond yields move inversely to prices.

Oil prices were little changed with Brent crude, the international benchmark, flat at $43.63 a barrel.


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