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Tags: fed | central | bank | bernanke | markets | stocks | stock

Fed's Money Spigot Pumped Up Markets in April

Sunday, 01 May 2011 04:10 PM EDT

Global markets closed out a week to remember on Friday as Federal Reserve chairman Ben Bernanke's pledge to keep cheap money flowing through the economy pushed the Nasdaq to a 10-year high, and gold and silver broke records.

Commodity investments were especially hot. The Reuters-Jefferies CRB index, which includes everything from oil to silver, has risen eight straight months through April in its longest winning streak since 2003. Silver alone shot up 27 percent.

Bernanke signaled on Wednesday that the U.S. central bank is in no rush to scale back its support for the economy with the labor market still in a "very, very deep hole."

"Bernanke's assurance this week to maintain very low policy rates is encouraging investors to take even more risk in a variety of asset classes and commodities, both within and outside the U.S," said Mohamed El-Erian, co-chief investment officer of Pacific Investment Management Co., which oversees $1.2 trillion in assets.

Investors also dumped the dollar, pushing it to a three-year low on concerns the Fed's money-printing operation will further debase the greenback's value. They also have deep concerns about growth in the United States, which is slower than many of its largest trading partners.

Showing how important the Fed's easy money policy has been in upending traditional investment views, money has been pouring into transportation stocks even though oil prices -- a primary expense for transport companies -- are at multi-year highs.

The Dow Jones Transportation Average surged to an all-time high on Thursday, the same day U.S. oil prices touched a 31-month high.

Benchmark U.S. silver futures rose almost 4 percent for the week after racing to near $50 an ounce. Gold saw its biggest daily gain in five months on Friday, finishing near $1,550 an ounce. The Dow Jones industrial average racked up its best month since December and small- and mid-sized stock indexes hit record highs.

Major stock indexes, including the Nasdaq, lagged precious metals but booked solid weekly and monthly gains, despite worries over the unrest in the Middle East, unsolved public debt problems on both sides of the Atlantic and the cost of the natural disasters that ravaged Japan in March.

The Dow Jones industrial average was up 47.23 points, or 0.37 percent, at 12,810.54. The Standard & Poor's 500 Indexwas up 3.13 points, or 0.23 percent, at 1,363.61. The Nasdaq Composite Index was up 1.01 points, or 0.04 percent, at 2,873.54.

The billions of dollars the U.S. central bank has created to help the economy have succeeded in inflating asset prices and stemming deflation, but have failed to generate robust growth and slash unemployment.

Bernanke's promise of keeping U.S. interest rates near zero -- made at a news conference after a two-day policy meeting -- crushed the dollar as traders piled into "carry trades" using the cheap dollar to fund them.

World equities, as measured by the MSCI index , rose 3.9 percent in April, despite anxiety over oil prices slowing global growth.

Benchmark crude oil prices finished above $125 a barrel in London , as the tumbling dollar and violence in North Africa and the Middle East outweighed concerns about slowing U.S. economic growth. U.S. crude settled at $113.93 a barrel after earlier touching $114.18, the highest intraday price since crude reached $130 on Sept. 22, 2008.

Boosted by the rally in precious metals, the 19-commodities CRB index, a broad indicator of the commodity market, is up 10 percent for the year, making it the world's best-performing asset group. On Friday, the index gained 1.2 percent to end at 370.56, after earlier touching 370.71, a 52-week intraday high.

April's strength in equity and commodity markets came almost entirely at the dollar's expense after Standard & Poor's revised downward its outlook for the United States' stellar triple-A sovereign credit rating.

Friday's economic reports reinforced this fragile outlook. Data showed slowing growth in regional manufacturing and high gasoline prices reducing Americans' purchasing power.

The U.S. dollar index , which measures the dollar's performance against a basket of major currencies, fell as low as 72.834, the lowest since 2008. Late Friday, the dollar index was down 0.1 percent at 73.036.

The euro touched a 17-month high against the greenback, trading at $1.4844 by 1500 GMT.

U.S. Treasury prices rose, punctuating an April rally that lifted the market into positive territory for the year, as traders bet on slowing economic growth and the Fed's accomodative monetary policy.

© 2024 Thomson/Reuters. All rights reserved.

Global markets closed out a week to remember on Friday as Federal Reserve chairman Ben Bernanke's pledge to keep cheap money flowing through the economy pushed the Nasdaq to a 10-year high, and gold and silver broke records. Commodity investments were especially hot. The...
Sunday, 01 May 2011 04:10 PM
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