Risk Assets Extend Rally As Investors Embrace Central Bank Policies

Building off the momentum generated from yesterday’s central bank announcements, risk assets worldwide continued to rally.  Today in the U.S., investors were presented with a mixed bag economic data relating to the labor and housing markets.  Initial jobless claims fell from the previous week’s mark, down to 252,000, better than the consensus expectation of 261,000 and matching the lowest level since April.  The figure provided a positive first indication for the September labor market, which will be closely monitored following yesterday’s Fed comments that stressed the need for continued growth in employment.  In the real estate sector, with expectations for a slim increase in the month of August, existing home sales surprisingly dropped 0.9% to an annualized rate of 5.33 million.  Reduced supply caused by falling residential prices was pointed to as the main cause of the decrease.             

In Europe, stock indexes posted substantial gains as the international markets were provided their first opportunity to react to the Fed decision.  The U.K.’s FTSE 100 finished up 1.1% while the major indexes in France and Canada both rose just above 2.25%.  Asian markets also climbed for the second day in a row, averaging a 0.5% increase across the region.  Against the U.S. Dollar currencies were mixed, as the Euro gained 0.4% to $1.1227/euro, and the Yen erased a portion of yesterday’s gains moving to 101.58 Yen per dollar.

Crude oil prices moved higher for the second day in a row after markets learned of a meeting between rival producers Saudi Arabia and Iran.  The informal meeting occurred one week before OPEC members are scheduled to meet in Algiers to discuss a production-freezing agreement.  Bullish investors view talks amongst the two countries as an important step in stabilizing energy prices, as disputes between them earlier in the year led to the breaking down of a previous potential output deal.

All three major U.S. stock indexes are currently trading up between 0.50% and 0.75% on the day while U.S. Treasury yields and swap rates are down 0-3 bps across the curve.  The jump in oil prices has put WTI crude up 2.10% to $46.30/barrel, and Brent crude up 1.65% to $47.60/barrel.