Markets Rise After The Interest Rate Decision

Asian trade: Asian shares are posting gains, helped by the Fed’s interest rate decision to reduce the Fed Funds by 75 basis points. U.S. equity markets also closed higher, but for the moment, the S&P futures are trading slightly under the break-even line.

Tonight, the U.S. market rallied, after the FOMC decided to reduce rates down to 0.25%, the lowest level on record. The Dow Jones gained 359.61 points (4.20%), while the broader S&P rose 44.61 points (5.14%). The rally seen today was the largest that U.S. equity markets had on an interest rate decision since 1994.

Despite the equity markets’ reaction, the effects of the interest rate decision will be low over the real economy. The effective Fed Funds rate was already trading at a record low level, 0.10% before the FOMC meeting. Therefore, the Fed is now reaching the limits of monetary policy, and will now try to shift its focus on buying assets, as longer-term bonds, in order to help the economy revive.

In the overnight session, the Asian markets reached a five-week high. The Nikkei gained 91.14 points (1.06%) to 8,659.16, while the Australian S&P/Asx rose 34.20 points (0.96%) to 3,590.40. The U.S. futures are pointing to a weaker start down on Wall Street, having the S&P down by 4.40 points.

Crude oil closed the last day of trading flat, despite the intra-day movement. Crude oil for January delivery fell $0.10 to $47.50.

Gold retraced some of gains seen earlier in the Asian markets. Bullion for immediate delivery fell $6.80 to $848.20.

Previous Wall Street trade: Stocks gained and the dollar weakened for a second day across the board after the Federal Reserve lowered its target overnight rate to a range between 0.00% and 0.25%. The dollar plunged against the entire basket including the yen after the announcement, even as stocks rose.

Additionally, the FOMC said it was moving to a conditional policy on interest rates and quantitative easing, saying it will purchase "large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant."

Previous European trade: In Europe, the major indexes opened lower but finished with gains. The U.K. Ftse rose 31.52 points (0.74%) to 4,309.08, while the German Dax rose 75.09 points (1.61%) to 4,729.91.