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Stocks jump on dovish Fed tone

The stock market surged Thursday after a surprisingly dovish Federal Reserve indicated it would not lift interest rates this year and sounded a note of caution on the US economy.

The Philippine Stock Exchange Index surged 96.52 points, or 1.2 percent, to 7,954.72 on a value turnover of P5.6 billion. Gainers overwhelmed losers, 124 to 76, with 43 issues unchanged.

JG Summit Holdings Inc. of industrialist John Gokongwei advanced 7.1 percent to P64.90, while property unit Robinsons Land Corp. climbed 4 percent to P24.45.

LT Group Inc. of tobacco and airline tycoon Lucio Tan rose 4.7 percent P17.30, while Aboitiz Equity Ventures Inc. gained 4.1 percent to P58.50.

The dollar, meanwhile, struggled in Asia after the dovish Fed comments.

While the prospect of lower borrowing costs provided support to equity markets, investors were spooked as Donald Trump dented hopes for a quick resolution to the China-US trade talks by warning tariffs would stay in place for some time after any agreement is reached.

After a much-anticipated meeting, the US central bank forecast that it would not raise rates this year―a shift from an earlier projection of two―and cut its annual growth outlook.

“It may be some time before the outlook for jobs and inflation calls clearly for a change in policy,” Fed boss Jerome Powell said after the meeting.

The announcement took markets by surprise, with most observers expecting it would tee up at least one rate hike this year, and fueled concerns about the state of the economy.

The greenback sank against its major peers, while higher-yielding units were also well up. The South African rand piled on more than two percent, Mexico’s peso jumped more than one percent and the Australian dollar jumped one percent. And the yuan was at its highest level since July.

Most stock markets in Asia rose, with Shanghai 0.4 percent higher, while Singapore added 0.2 percent and Seoul climbed 0.4 percent. Sydney, Taipei, Bangkok and Jakarta also rose though Hong Kong reversed course in the afternoon to close 0.9 percent lower.

However, there is some unease across trading floors after Trump’s remarks. The president said that if a trade deal is reached between the world’s top two economies, US tariffs would remain in place “for a substantial period of time.”

“We have to make sure that if we do the deal with China... China lives by the deal,” he added.

The comments dented optimism the two sides would reach an agreement to end a standoff that has scythed global markets last year.

“This could be a major sticking point from the Chinese side,” said National Australia Bank’s Ray Attrill. “We can but hope it’s all part of the ‘Art of the Deal,’ but in the meantime (it) means we can’t as yet fully price in a trade deal next month, or later, with supreme confidence.”

Traders are also casting a wary eye on the Brexit saga after Prime Minister Theresa May asked for a three-month extension to the March 29 deadline for leaving the EU as she struggled to prevent an economically painful no-deal divorce. With AFP

Topics: stock market , Philippine Stock Exchange , PSE , Philippine Stock Exchange Index , PSEi , Federal Reserve
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