Optimism has returned to markets post the BOJ and FOMC.

Following the Fed’s “hawkish hold” and the BOJ’s “confused contradiction”, global risk (and non-risk) assets got the green light, and as a result stocks and bonds rallied in Asia and Europe, with US equity futures rising another 0.4%, advancing with oil and industrial metals, as iron surged in Chinese trading.

“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 managerGAM’s head of multi-asset portfolios, Larry Hatheway.

Looking back at the Fed’s decision, Yellen signaled she could hike rates by year-end as the labor market improved further, but cut the number of rate increases expected in 2017 and 2018. Yellen also reduced its longer-run interest rate forecast to 2.9 percent from 3 percent. Richard Franulovich, an analyst at Westpac, noted that back in June the median ‘dot plot’ 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.”

DB’s Jim Reid summarizes it as follows: “Tough talking, no hiking”, and says that while this sounds like an odd Kanye West track, instead it seems to be the perennial mantra of the Fed at the moment. If you think you’ve heard this before then you’d be correct as the Fed again basically told the market that they are very close to a hike but couldn’t get comfortable enough to pull the trigger. One wonders how many more times we’ll get a similar outcome. The hawkish elements were that there were 3 dissenters, the most since December 2014, and that most member’s dots still suggest (at least) one hike this year. The dovish side was perhaps that the dots were lowered beyond this year with two hikes priced in for 2017 (median) rather than the three expected back in June. So here we go again, it’s all about the data and market stability but probably not in a heightened state for a few more weeks until December appears slowly over the horizon.

Others shared his sentiment, and have turned bullish not only on DM but EM as a result too: “As the Fed continues to confirm a shallow tightening cycle, we still see virtues in an emerging market exposure,” Societe Generale strategists, including Alain Bokobza, write in note. “EM currencies seem to have stabilized while economic growth is also improving. Another positive factor in the EM backdrop is the stabilization of the economic situation in China. In the context of a search for yield, all this will support EM assets”

The period “of having very low developed market rates for a very long time, and investors needing yields, that is still there,” Peter Kinsella, head of EM economic and FX research at Commerzbank AG, told Bloomberg TV in Hong Kong. “We had previously thought it was going to be an aggressive Fed rate-hiking cycle and it’s clearly not going to be that.”

Clearly not, and as a result this morning Europe’s Stoxx 600 Index climbed for the second day, rising to its highest in almost two weeks, while gauges tracking Asian shares and raw-materials prices climbed for a sixth day. The dollar weakened versus most of its peers after the Fed on Wednesday left interest rates unchanged and scaled back its projections for hikes in 2017 and beyond.

Just as importantly, Germany’s 10-year yield slid to a two-week low as fears of a runaway curve steepening fall to the backburner. The rate on 10Y U.S. TSYs also fell by one basis point to 1.64%, after decreasing four basis points on Wednesday. Jeffrey Gundlach, the chief investment officer at DoubleLine Capital LP, said on CNBC that the yield will rise above 2 percent in 2016 and a Fed interest-rate increase in December isn’t a given. Bill Irving, co-manager of Fidelity Government Income Fund, said yields will remain low and there’s a 60 percent chance of a Fed hike by year-end.

Loose monetary policies in the U.S., Europe and Asia have helped drive gains in stocks, bonds and commodities this year and the latest signals from central bankers suggest the era of cheap money has further to run. While the Fed still sees a rate hike this year, its projection for increases in 2017 was trimmed to two from three. Japan’s central bank on Wednesday pledged to overshoot its 2 percent inflation goal and took steps to limit the negative side effects of its record stimulus.

Speeches are due Thursday from the heads of the European Central Bank and the Bank of England, while at least seven central banks have policy reviews. Indonesia is forecast to lower interest rates and about a third of economists surveyed by Bloomberg are predicting a cut in Norway, while monetary authorities in South Africa and Turkey are seen leaving borrowing costs unchanged. Gauges of business confidence in France increased ahead of the release of a measure of consumer sentiment for the euro area.

Raw-materials producers and energy shares led gains in Asia and Europe. The Stoxx Europe 600 Index was up 0.6 percent in early trading, while the MSCI Asia Pacific excluding Japan Index climbed 1.1 percent. Japanese markets were shut for a holiday. Hanjin Shipping Co., the South Korean container line that has sought bankruptcy protection, surged 30 percent after securing new loans. from top shareholder Korean Air Lines Co., which rallied 5.4 percent. Newcrest Mining Ltd., Australia’s biggest gold producer, rose 6.9 percent.

Futures on the S&P 500 were little changed for most of the session but jumped 0.4% in recent trading, after the cash index climbed 1.1% in the last session.

Market Snapshot

• S&P 500 futures up less than 0.4% to 2164
• Stoxx 600 up 0.8% to 345
• FTSE 100 up 0.7% to 6880
• DAX up 1.2% to 10565
• German 10Yr yield down 5bps to -0.05%
• Italian 10Yr yield down 6bps to 1.22%
• Spanish 10Yr yield down 6bps to 0.94%
• S&P GSCI Index up 0.8% to 357.6
• MSCI Asia Pacific up 0.6% to 142
• Nikkei 225 – closed
• Hang Seng up 0.4% to 23760
• Shanghai Composite up 0.5% to 3042
• S&P/ASX 200 up 0.7% to 5374
• US 10-yr yield down 1bp to 1.64%
• Dollar Index down 0.49% to 95.2
• WTI Crude futures up 1% to $45.79
• Brent Futures up 0.9% to $47.25
• Gold spot down less than 0.1% to $1,333
• Silver spot down 0.5% to $19.75

Global Headline News

• Yellen Rebuffs
  Pressure to Hike as Fed Gives Economy Room to Run: Fed Chair “generally
  pleased” with how U.S. economy is doing
• ECB Says Ready to Act to Achieve Price Stability If Needed: ECB comments in Economic Bulletin published on Thursday
• Global Banks Said to Plan for Loss of Euro Clearing After Brexit: Executives see $570b of swaps being stripped from U.K.
• EU Banks May Need Rescue Funds Equaling Twice Their ECB Capital: Single
  Resolution Board takes SREP capital as starting point
• Euronext CEO Sees Diminished Role for London Following Brexit: Boujnah says investors are looking for new European gateway
• Apple Said Seeking McLaren Stake, in Talks to Buy Lit Motors: McLaren
  deal would give Apple access to technology and patents
• Hartford Said to Enlist JPMorgan to Sell Annuity Runoff Business: Talcott unit said to draw interest from Apollo, Berkshire
• Yahoo Will Soon Reveal ‘Massive’ Loss of User Data, Recode Says: The
  break-in was “widespread and serious” and is expected to be disclosed
  this week, the tech news website said
• Zuckerberg, Chan Start $3b Initiative to Cure Disease: Facebook co-founder, wife to fund $600m research center

Looking at regional markets, we start as usual in Asia, where stocks took the impetus from the firm close on Wall Street where sentiment was supported after the FOMC kept rates unchangedand the Fed’s dot plots suggested a more gradual path of rate increases. This supported all major bourses in the region, with ASX 200 (+0.9%) also lifted by gains in commodity names after WTI crude futures rose 3% on an unexpected drawdown in DoE crude inventories and gold gained over USD 13/oz on the less hawkish than expected Fed. Elsewhere, Hanjin Shipping outperformed in the KOSPI (+1.1%) with its shares higher by nearly 30% after reports of financial support for the troubled carrier, while Shanghai Comp (+0.8%) and Hang Seng (+1.2%) conformed to the upbeat tone as the PBoC maintained firm liquidity injections. As a reminder, Japanese markets were shut for Autumnal Equinox.

Top Asian News

• RBA’s Lowe Says Australia Likely to Avoid Unorthodox Policy: Governor Lowe says lower Aussie dollar “would be helpful”
• RBNZ Keeps Rates on Hold, Says Further Easing Will Be Needed: Economists expect central bank to cut OCR to 1.75% in Nov.
• Carlyle Sues China ATM Firm Seeking $369m Over Missed IPO: Winding-up petition filed in Caymans by two Carlyle funds
• Cohen’s Point72 Goes on Biggest Ever Hiring Spree in Asia: Firm recruited 31 people in region, 21 on investment side
• Hanjin Gets Korean Air Funds as Court Says Revival at Risk: Court criticizes slow resolution of shipping disruptions
• Top China Hedge Fund Bucks Losses With Bets on Consumer Stocks: Lygh China fund up 12.6% this year as Shanghai Comp drops 15%
• Tencent’s WeChat Social Media Posts Count as Criminal Evidence: All social content can be secretly gained and used in court

In Europe, stocks trade firmly in positive territory (EuroStoxx 50 +1.1%), following on from the gains seen in both US and Asian Indices. This comes very much in the wake of yesterday’s FOMC release with Europe also digesting it as a less hawkish than anticipated event with the dot plot now predicting a slower pace of hikes through to 2018. The USD weakened across the board in the wake of the decision – which has since offered some reprieve to the commodities complex — and as such the materials and energy sectors outperform in Europe. The possibility of lower rates for longer has also had an effect on the financial sector, which is a notable laggard of the mornings trade. Notable upside has been observed in Fl products — again as a product of the FOMC rate decision — as yields fall with the periphery tighter to its core counterparts. Of note, no auctions are expected to take place in Europe today, although we a lOy TIPS is due for release shortly after 1800BST in the US.

Top European News

• Maersk to Split Group Into Separate Transport, Energy Companies: Sees several options for oil business, including IPO
• Delivery Hero CEO on Amazon, Uber Food Incursion: Let Them Come: Rocket Internet-backed startup says learning curve is steep
• Ericsson Says Sweden Won’t Be Excluded From Further Job Cuts: Company reported to end network manufacturing in Sweden
• Rolls-Royce Names Daily Mail’s Daintith CFO as Smith Leaves: Daintith join plane-engine maker at beginning of 2017
• EDF Shrinks Profit Range as Safety Checks Prolong Outages: State utility reduces target for nuclear-power production
• Julius Baer CEO Says Asia Revenue May Top Europe in 5 Years: Swiss wealth manager steps up hiring in Singapore, Hong Kong
• M&C Saatchi Reports Strong 1H, Says 2H Started Well, in Line: co. reported 1H revenue up 15% to GBP100.2m

In FX, the Bloomberg Dollar Spot Index fell 0.3 percent, after sliding 0.7 percent on Wednesday.The won jumped 1.6 percent, leading gains among major currencies. The yen weakened 0.2 percent, after volatile trading on Wednesday that saw swings of more than 1 percent in both directions following the BOJ meeting. The Japanese central bank’s policy tweaks give it scope to keep easing to revive the economy and inflation, while limiting the negative impact on bank earnings. The currencies of resource-exporting nations were among the best performers, with the Australian and Canadian dollars appreciating 0.5 percent versus the greenback. South Africa’s rand rose 1.2 percent and Malaysia’s ringgit strengthened 0.7 percent.New Zealand’s weakened 0.1 percent after the Reserve Bank of New Zealand kept its key interest rate at a record low on Thursday and said further reductions will be needed in order to move inflation toward its 2 percent target. Investors increased bets on a November rate cut, with the probability of a move by then rising by 19 percentage points to 70 percent in the swaps market.  “The RBNZ Statement, although little changed from August, was slightly more dovish than the market anticipated,” said Jason Wong, a currency strategist in Wellington at Bank of New Zealand Ltd. “This was probably a tactical move by the central bank to avoid any undesired appreciation in the kiwi.”

In commodities, the Bloomberg Commodity Index rose 0.5 percent, set for its highest close in almost a month. Crude oil for delivery in November climbed 0.9 percent to $45.74 a barrel in New York, after rallying 2.9 percent in the last session. U.S. inventories fell by 6.2 million barrels last week, official data showed Wednesday, spurring optimism a glut will ease. OPEC members Saudi Arabia and Iran, whose rivalry derailed an oil supply accord earlier this year, held talks in Vienna a week before the organization and Russia meet Sept. 28 in Algeria to discuss measures to stabilize prices.

Bulletin Headline Summary from RanSquawk and Bloomberg

• European stocks trade firmly in positive territory (EuroStoxx 50 +1.1%), following on from the gains seen in both US and Asian Indices
• USD remains broadly weaker against its major counterparts with the exception of JPY while commodity currencies continue to be supported by yesterday’s gains in energy prices
• Looking ahead, highlights include US weekly jobs and existing home sales, ECB President Draghi and BoE Governor Carney

* * *

DB’s Jim Reid concludes the overnight wrap

“Tough talking, no hiking”. Sounds like an odd Kanye West track but instead it seems to be the perennial mantra of the Fed at the moment. If you think you’ve heard this before then you’d be correct as the Fed again basically told the market that they are very close to a hike but couldn’t get comfortable enough to pull the trigger. One wonders how many more times we’ll get a similar outcome. The hawkish elements were that there were 3 dissenters, the most since December 2014, and that most member’s dots still suggest (at least) one hike this year. The dovish side was perhaps that the dots were lowered beyond this year with two hikes priced in for 2017 (median) rather than the three expected back in June. So here we go again, it’s all about the data and market stability but probably not in a heightened state for a few more weeks until December appears slowly over the horizon.

The fact that we’ve got nearly 3 months until the Fed ‘might’ pull the trigger (assuming you rule out November for now) seemed to help markets move on with the S&P 500 climbing +1.09% with most of that being after the FOMC decision. We were flat when Europe went home despite a strong day elsewhere post the BoJ. 10 year Treasuries fell 4bps having also been flat as Europe closed. Indeed core global bond yields didn’t react massively to the earlier BoJ news. Before the Fed, French and German 10Y yields ticked up by +2bps, with the latter back around zero after yesterday’s dip below, while Gilts were flat. 10 year JGBs eventually closed at -0.037, around halfway between where they were before the meeting and a brief moment after where they popped their head above the zero parapet. Japanese markets are closed this morning but elsewhere Asian equities are higher led by the Hang Seng (+1.55%) with most other markets up just under a percent. The dollar is flat after a 0.7% fall yesterday and oil has risen another 1% after a 3% rally yesterday which we’ll touch on below.

As a postscript to yesterday’s BoJ announcement, our FX strategy guys see a slight contradiction in the policy. They believe the BoJ has sent a strong signal by explicitly targeting nominal yields and prioritising financial stability and bank profitability over lower real rates which arguably are more supportive for the economy all other things being equal. Their concern is that policy could become pro-cyclical. For example if growth/inflation weakens and demand for JGBs increase but the BoJ compensates by buying less to prevent 10 years deviating too far from current levels, then real yields will rise. Another potential scenario is that it invites the government to try a huge fiscal stimulus as the BoJ is likely to be needed to buy more if debt increases to support their 10 year JGB target. So the invite to launch the helicopters is there. However until the Government steps-up, this policy will likely have limited real economy impact and perhaps by shuffling chairs rather than conducting fresh easing it shows the diminishing returns of monetary policy alone. So perhaps this policy was an indirect way of passing the baton over the PM Abe. At the moment our FX guys remain JPY bulls and continue to target a break below 100 in USD/JPY to 94 by the end of the year (current 100.40).

In the European session, markets did trade yesterday with a bias that this policy adjustment may form a blueprint for other central banks, with yesterday’s gains in European stocks (STOXX 600 +0.4%) also led by banks (+1.96%). Insurers (+1.66%) and financial services (+0.88%) were also among the best performing sectors yesterday. Oil (WTI +3%) extended gains on news that US crude inventories dropped by 6.2mn barrels last week (vs. 3.25mn increase expected).

Credit markets in Europe also benefited from a general risk on sentiment with main tightening by -1bp, although crossover was basically flat on the day. Mirroring moves in equity markets, senior financials led the way by tightening by nearly -3bps on the day. The US also felt the same risk on sentiment as CDX IG and HY tightened by roughly -2bps and -18bps respectively.

In terms of data, yesterday was a very quiet day. We saw UK public sector net borrowing data (ex banking groups) decline at a slower pace than expected in August with the deficit standing at GBP 10.5bn (vs. 10.2bn expected). It seems unlikely that the UK government will meet the OBR’s 2016-17 deficit forecast if this reduced pace continues, which is likely given the pressure on public finances expected post-Brexit. Over in China the Conference Board leading and coincident economic indices for August clocked in at 152.7 and 154.0 respectively, with both indicators up +0.9% mom.