Confident speculation that the Federal Reserve will keep interest rates low helped push Wall Street back into positive territory today.

A Bloomberg survey of 98 economists predicted that the Fed will leave its benchmark lending rate unchanged despite recent data pointing to renewed economic growth. High unemployment is a key concern for the Fed and analysts feel rates are unlikely to rise while the labour market remains weak.

Jesper Dannesboe, a commodity strategist at Societe Generale SA in London said: ‘The Fed is likely to hint that interest rates will remain at current low levels for the next few quarters. Another year of low interest rates is good for all growth-sensitive assets.’ [1]

The resulting investor sentiment boosted US and European stocks with the Dow trading 43.01 points (0.41%) higher by 3.30pm (London time) and the S&P 500 gaining 5.78 (0.52%) at 1113.71 – approaching its highest level in 14 months.

In the UK, the FTSE slipped from the morning’s highs this afternoon, but was still positive, reaching 5304.49 (+ 0.35%).

This afternoon’s macroeconomic news offered little reason for the Fed to change its policy. US consumer prices rose by 0.4% in November, mainly pushed up by energy costs, while housing starts, which increased 8.9% in November to reach an annual rate of 574,000, failed to hit the expected figure of 580,000.

In companies news, financial stocks regained some of the ground lost yesterday, with Bank of America adding $0.18 (1.19%) at $15.37 while American Express rose by $0.44 (1.07%) to $41.40.

Among those trading lower was Intel, whose shares fell $0.36 (1.80%) to $19.44 after the FTC accused the company of acting ‘to stifle competition and strengthen its monopoly.’ [2] Boeing was also down, dropping $0.58 (1.04%) to $55.09, while General Electric lost $0.05 (0.32%) at $15.70.

[1] Source: Bloomberg News (16 December 2009)
[2] Source: Bloomberg News (16 December 2009)

By Anthony Grech, Research Analyst, IG Index.

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