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Asian Morning Briefing: U.S. Stocks Rally


Markets at a Glance

(Data as of approximately 5 p.m. ET)

                       LAST    CHANGE   % CHG
DJIA                 16906.62    98.13   0.58%
Nasdaq                4362.84     25.6   0.59%
S&P 500               1956.98    14.99   0.77%
Japan: Nikkei 225     15115.8   144.89   0.97%
Hang Seng            23181.72   -21.87  -0.09%
Shanghai Composite    2055.52   -11.18  -0.54%
S&P BSE Sensex       25246.25  -274.94  -1.08%
Australia: S&P/ASX     5382.7      -18  -0.33%
UK: FTSE 100          6778.56    11.79   0.17%


                    PRICE CHG  YIELD%
U.S. 2 Year              2/32   0.452
U.S. 5 Year             11/32   1.675
U.S. 10 Year            18/32   2.586
Australia 10 Year       -9/32   3.743
China 10 Year            0/32     4.1
India 10 Year           -5/32    8.67
Japan 10 Year           -1/32   0.594
German 10 Year           8/32   1.377


                          LAST (MID)  CHANGE
Australia $ (AUD/USD)         0.9403  -0.0007
Yen (USD/JPY)                 101.92     0.01
S. Korean Won (USD/KRW)       1023.3     0.84
Chinese Yuan (USD/CNY)        6.2321   0.0009
Euro (EUR/USD)                1.3591  -0.0005
WSJ Dollar Index               73.07     0.02


               LAST   CHANGE  % CHG
Crude Oil     106.14   -0.22  -0.21%
Brent Crude   114.25     0.8   0.71%
Gold          1277.9     5.9   0.46%

     SNAPSHOT:

U.S. stocks rallied, sending the S&P 500 to a record close, after Federal Reserve Chairwoman Janet Yellen offered an upbeat outlook for the U.S. economy. Treasury prices rose, gold held steady and the dollar fell. U.S. oil prices fell on supply data, while Brent continued to rise on concerns about Iraqi oil supplies.

OPENING CALL:

Asian markets may follow U.S. markets higher after U.S. Federal Reserve' officials nudged up their projections for short-term interest rates in 2015 and 2016 but slightly reduced their outlook for interest rates in the longer-run. Investors in Asia will also get a reading on New Zealand's GDP. The country's economy has been firing on all cylinders lately, leading the Reserve Bank of New Zealand to raise interest rates at its past three meetings - a stark contrast to its peers in other developed markets, who are mostly keeping rates at all-time lows.

EQUITIES:

The S&P 500 closed at a record after Federal Reserve Chairwoman Janet Yellen offered an upbeat outlook for the U.S. economy.

Stocks rallied in late trading as Ms. Yellen said the U.S. economy is showing signs of strength after a dismal first quarter. The Fed announced a $10 billion reduction in the central bank's bond-buying program, as widely expected. And while officials trimmed long-term forecasts for economic growth, their projections for short-term interest rates in 2015 and 2016 rose slightly.

"The broad pattern is pretty clear...the economy is strengthening," said Seth Masters, chief investment officer of AllianceBernstein's private-client arm, which manages $70 billion. "It's a good thing for stocks."

While stock-market valuations have risen above long-term averages, Mr. Masters thinks stocks are still "reasonably attractive." "You're getting a fair deal," he said.

In her news conference, Ms. Yellen said that stock prices broadly aren't outside of historical norms. The S&P 500 is currently trading at 15.5 times its expected earnings for the next 12 months, above its 10-year average of 13.9.

Price moves in other markets were largely subdued. After some back-and-forth, Treasury prices rose, pushing bond yields lower. The dollar fell against major currencies after the Fed disappointed investors who anticipated an accelerated schedule for raising interest rates.

Anthony Valeri, investment strategist at LPL Financial, said the Fed's projections "reinforce the idea that it will hold rates lower for longer, a boost to both stocks and bonds."

Asian markets were mixed Wednesday, with China's Shanghai Composite falling 0.5% and Japan's Nikkei Stock Average rising 0.9%.

FOREX:

The dollar fell against major currencies after the Federal Reserve disappointed investors who had expected a shift to tighter monetary policy and an accelerated schedule for the first increase in interest rates since the 2007-08 financial crisis.

After its two-day meeting, the Federal Open Market Committee said it would reduce its bond purchases by another $10 billion a month in July, to $35 billion, a move that most investors expected. The monthly bond-purchase program, created to hold down long-term interest rates and stimulate the economy, has weighed on the dollar.

In addition, the central bank forecast the federal-funds rate, currently near zero, would reach 1.2% by the end of next year and 2.5% by the end of 2016, which pointed to slightly faster tightening over the next two years than formerly expected.

But its forecast didn't move up timing for the first interest-rate increase of the series, something some investors had hoped for, as many had lined up long bets for the dollar ahead of the FOMC meeting. Higher interest rates would make the dollar more attractive to investors, as it would increase returns on dollar-denominated assets.

"Nothing in the Fed statement will help dollar bulls," said Chris Gaffney, senior vice president and director of sales at EverBank World Markets.

In her news conference following the FOMC meeting, Federal Reserve Chairwoman Janet Yellen said no formula was in place for when the central bank would start to raise short-term interest rates. "It depends on how the economy progresses," Ms. Yellen said.

The euro, beleaguered since the European Central Bank announced measures designed to stimulate the economy and battle extremely low inflation, rose against the dollar after Ms. Yellen's comments.

BONDS:

Treasury bonds strengthened along with a rally in stocks as the latest interest-rate projections from the Federal Reserve reassured investors that low interest rates could stay low for longer.

Analysts said bond prices got a further boost from comments from Fed Chairwoman Janet Yellen during a press conference after the conclusion of the two-day policy meeting. Ms. Yellen reiterated that the central bank expects to keep interest rates near zero for a considerable time to support the economy.

The U.S. central bank said in a statement that it will further reduce its monthly bond buying by $10 billion to $35 billion, a decision widely expected by investors and economists.

But it was the Fed's interest-rate forecasts that drew investors' attention.

On average, Fed officials projected the benchmark federal funds rate would hit 1.2% by the end of 2015 and 2.5% by the end of 2016, up from averages of 1.125% in 2015 and 2.4% in 2016 when the Fed last projected rates in March.

The marginally higher projections briefly generated some selling in the bond market. But buyers stepped in as focus shifted to the Fed's forecast on interest rates longer term. Fed officials on average said the target interest rate could settle in at 3.75%, down from earlier forecasts of 4%, over the longer run.

COMMODITIES:

U.S. oil prices fell on data that crude supplies shrank less than expected last week, while Brent, the international benchmark, continued to rise on concerns about Iraqi oil supplies.

The price gap between the two was at its widest since mid-May.

U.S. oil supplies declined 579,000 barrels last week, compared with an average Wall Street Journal survey estimate for stocks to fall 1.1 million barrels on the week.

Refiners didn't process as much oil into gasoline and other products as analysts had expected. Refining capacity utilization fell 0.8 percentage point to 87.1% of capacity, its lowest since late March, compared with expectations for the operating rate to rise by 0.8 percentage point.

Several refineries were still undergoing planned maintenance last week and others experienced unplanned outages. The return of those refineries "should result in an increase in runs showing up in the data next week," said Mike Tran of CIBC World Markets in a note.

Supplies in Cushing, Okla., a key storage hub and the delivery point for the Nymex contract, rose by 200,000 barrels to 21.4 million barrels.

Cushing stocks have fallen rapidly in recent months as a new pipeline shipped oil out of storage to refineries along the Gulf Coast. As inventories dropped from 41.8 million barrels in the week ended Jan. 24 to 21.2 million barrels in the week ended June 6, prices climbed amid concerns that supplies at the delivery point would reach such low levels that it would be difficult to pump oil out of storage tanks.

Meanwhile, Brent prices rose to a fresh nine-month high on concerns that violence in Iraq could threaten the country's oil production.

In the metals market, gold prices held near steady after the Federal Reserve's monetary policy statement came in line with market expectations. While gold prices tumbled and then jumped in the few minutes directly following the statement, the market stabilized nearly unchanged as investors sifted the documents.

TODAY'S HEADLINES:

Fed Raises Projections for Rates in 2015, 2016

Federal Reserve officials nudged up their projections for short-term interest rates in 2015 and 2016 but slightly reduced their outlook for interest rates in the longer-run. The Fed said it would wind down its bond buying by another $ 10 billion.

Iraqi Forces Battle for Control of Oil Refinery

Iraq's counterterrorism units were battling insurgents for control of the country's main oil refinery, trying to keep the fuel hub from falling to a powerful week-old offensive by Sunni Muslim militants.

Argentina Will Negotiate With Creditors

Argentina will negotiate with holdout creditors over its defaulted bonds, a lawyer representing the country said, in a potential breakthrough that sent government bonds surging because it could prevent another default.

Amazon.com Unveils 'Fire Phone' Smartphone


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