Markets rally after Fed move

MARKETS rallied yesterday on the back of the latest attempts by the US Federal Reserve to trigger economic recovery.

Despite a positive start the ISEQ Index closed down 0.4%, while other markets across Europe had a good day.

AIB and Bank of Ireland jumped 13% and 14% to 59c and 40.7c respectively while Irish Life and Permanent followed suit increasing 20% to 90c.

The US Federal Reserve said on Wednesday that it will buy up to $300 billion (€219bn) worth of longer-term US government debt over the next six months to help ease credit market conditions. It also said it was boosting its purchases of mortgage securities by $750 billion.

Davy economist Rossa White said there were a few potential implications of the Fed’s decision to pump money into the economy.

“Bonds may well continue to rally because the Fed has not said where it will stop. The counter is that bond issuance is going to be massive over the next few years in the US thanks to the fiscal plans, so the market will begin to debate at what point monetary expansion tips the balance away from deflation.

“The implication for the dollar looks clearer. It has been benefitting from a safe-haven status. But the massive increase in the dollar supply is likely to prolong the nascent sell-off in the weeks ahead.”