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Soothing Fed Gives Stocks Their Mojo

World shares and bonds rallied on Thursday, after the Federal Reserve left U.S. interest rates unchanged and slowed the pace of future hikes, weakening the dollar and lifting commodity prices.

Traders work on the floor of the New York Stock Exchange (NYSE)
Traders work on the floor of the New York Stock Exchange (NYSE) shortly after the opening bell in New York. REUTERS/Lucas Jackson

European markets followed Wall Street and Asia's lead with Britain’s FTSE 100 climbing 0.6 percent and Germany’s AX and France’s CAC 40 both rising a full 1 percent.

Oil and commodities firms gained the most as oil and metal prices rose, while the weakened dollar made the climbing easy for the euro, pound, and Swiss franc.

The yen was also at a four-week high against the greenback and the overnight drop in U.S. government bond yields saw German Bund yields move decisively back into negative territory.

"The looser for longer message from the Fed and the lowering of the median point of rate rise projections is seen as a plus for risk assets as can been seen in global equities," said fund manager GAM's head of multi-asset portfolios, Larry Hatheway.

The Fed did signal it could hike rates by year-end as the labor market improved further, but cut the number of rate increases expected in 2017 and 2018. It also reduced its longer-run interest rate forecast to 2.9 percent from 3 percent.

That left investors feeling any tightening would be glacial at best. Market pricing for a December move rose only a fraction to 59.3 percent , from 59.2 percent, according to CME Group's FedWatch tool.

Richard Franulovich, an analyst at Westpac, noted that back in June the median 'dot plot' -- the rate moves expected by the Fed's members -- showed five hikes to end-2017. Now it is down to just three.

"We do not feel that the dollar has the wherewithal to make a more concerted run higher in the next few weeks," he added. "The FOMC is unlikely to deliver anything more than a very 'dovish' December hike."

Before that also comes the uncertainty of U.S. elections, added GAM's Hatheway.