FTSE surges 2% on best trading day in 2 months after Fed injects $600bn

<p>Traders bought heavily into equities today as a knee jerk reaction to the Federal Reserve announcing a second round of quantitative easing of $600bn, slightly […]</p>

Traders bought heavily into equities today as a knee jerk reaction to the Federal Reserve announcing a second round of quantitative easing of $600bn, slightly higher than initially speculated by the market. Strong corporate earnings from Man Group and Unilever have also helped to supplement Index gains.

The announcement from the Fed, whilst largely expected by the market, has kept the wind in the sails of equity prices helping the FTSE 100 to post its best day of gains in over 2 months and hit a new 2 year high in the process. Investors are firmly cheering the fact that the Federal Reserve are being proactive and putting the measures in place to maintain US growth, stabilise prices and rejuvenate the struggling labour market.

What we have generally seen today has been investors remaining firmly on the front foot, hunting risky asset classes such as the heavyweight miners and energy firms. Indices across Europe are being turbo charged by the weak dollar, which continues to plummet after the QE2 announcement and this has triggered bullish commodity prices with Crude Oil, Copper and Gold all benefitting.

This is the first time the Federal Reserve has acted to stimulate an economy that was already growing. The key is that they are acting to prevent that growth from slowing and stagnating, which is a fairly aggressive stance and raises confidence that Bernanke is doing everything he can to keep the US economic recovery on track. The Fed has also left the door open for more easing should the case warrant and whilst this may boost sentiment further, without a set of guidelines that details what cases may warrant further easing, the market will find it difficult to price this element in.

It is however too early to come to the conclusion that today’s equity market reaction is a large scale vote of confidence that the Fed have made the right choice.Inevitably there is likely to be further implications to the currency wars however should the Japanese central bank, which brought its own meeting forward to tomorrow morning, bring forward its own large scale of monetary easing.

BHP Billiton shares surge on Potash ruling
BHP Billiton shares charged higher by 6.3% today, hitting a new record high in the process after the Canadian government intervened to prevent a successful takeover of Potash Corp. The move is a bit of shock to the market and the reaction has been at least in the short term to buy more of its stock on hopes that the company will now issue share buy backs or a special dividend.

The miner has also tracked a bullish mining sector in London that rallied 5% today, and this has helped maintain the push higher on its share price.

Long term shareholders may however be concerned after the second high profile takeover failure by Marius Kloppers after its failed Rio Tinto bid, and where the company may now need to look for growth potential.

Shares trading have been incredibly busy in BHP Billiton today, with aproximately double the amount of shares switching hands than the 30 day average.

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.