Thursday 17:30 BST. The prospect of continued central bank policy accommodation boosted global risk appetite, helping equities maintain their upward momentum and offering support to emerging market currencies and industrial commodities.
The bullish mood in the markets came after the Federal Reserve on Wednesday left interest rates unchanged — while appearing to pave the way for a rise in December — and the Bank of Japan unveiled adjustments to its policy aimed at steepening the yield curve.
Indeed, at one stage on Thursday the S&P 500 equity index reached 2,179.99 — climbing within 0.5 per cent of the record closing high of 2,190.15 it set in mid-August — before easing back to 2,174 by midday in New York, still up 0.5 per cent on the day.
The CBOE Vix volatility index was down more than 8 per cent at 12.18, the lowest for two weeks.
“The Fed noted that the case for higher rates had strengthened and three district Fed presidents dissented in favour of a rate hike; this was the virtual definition of a ‘hawkish hold’,” said Shaun Osborne, strategist at Scotiabank.
“And while a December tightening looks a very strong bet, investors remain reluctant to take the Fed at its word. Markets are factoring in a [roughly] 60 per cent risk of a December move — that is little changed from market pricing just ahead of the [rate] announcement.”
European equities put in an even more ebullient showing, with the pan-regional Stoxx 600 rising 1.6 per cent and the Xetra Dax in Frankfurt gaining 2.2 per cent. London’s FTSE 100 index rose 1.1 per cent.
Japanese markets were closed for a holiday — although analysts warned that trading on Friday could be volatile as changes to the BoJ’s programme of exchange-traded fund buying are implemented.
Meanwhile, the dollar continued its broad retreat in the wake of the Fed’s latest statement.
The euro was up 0.4 per cent against the US currency at $1.1229, while sterling was 0.5 per cent higher at $1.3086. The dollar index was down 0.4 per cent at 95.28, helping gold to extend Wednesday’s sharp advance by a further $5 to a two-week high of $1.341 an ounce.
Jane Foley, senior currency strategist at Rabobank, highlighted that the Fed had lowered the trajectory of expected interest rate rises, and was now pointing to just two increases next year.
“It is our view that the Fed will hike rates in December but that 2017 may only bring only one hike,” Ms Foley said.
“Indeed, unless US economic data improve, we see a tangible prospect that the Fed could enter a formal pause in its rate hiking cycle.
“Even if the Fed does hike rates in December, room for dollar upside could be limited if the market then expects a pause before policy tightening is resumed.”
But the dollar did rally 0.5 per cent against the yen to ¥100.79 following Wednesday’s 1.4 per cent slide.
Derek Halpenny at Bank of Tokyo-Mitsubishi UFJ, said that participants were likely to have turned cautious given the proximity of the currency pair to the ¥100 level.
“Current levels proved very supportive post-Brexit, and then again in July and August, and our sense is that strong domestic buying will help provide support over the near-term,” he said.
“The Japanese authorities will no doubt do all it can to indicate opposition to further strong gains for the yen.”
US Treasuries maintained their upward trend, with soft housing market data doing little to inspire confidence in the Fed’s rate-tightening credibility.
The yield on the policy-sensitive two-year note — which moves inversely to the price of the security — was down 2 basis points at 0.77 per cent while that on the 10-year was 5bp lower at 1.67 per cent.
European government bond yields also fell sharply, with that on Germany’s 10-year Bund shedding 10bp to minus 0.09 per cent.
Oil prices had another strong session, with Brent rising 1.7 per cent to $47.63, the highest since September 13, amid persistent speculation that major producers could agree to a production freeze later this month.
Copper also had a strong session, rising 1.9 per cent in London to $4,855 a tonne after touching a six-week peak $4,858.50.
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