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Financial Focus

Ben Bernanke held his first press conference following a Fed policy meeting yesterday. He told the US public that the economy still requires monetary support, but that the need to contain inflation means further easing is unlikely. Stocks extended gains, the dollar weakened and Treasuries fell after the press conference where the Fed chairman made it clear that borrowing costs would remain low for ‘an extended period’, and that economic stimulus would continue beyond the quantitative easing programme that ends in June.

THE UK’s economy expanded 0.5% in the first quarter of 2011 after declining by the same amount at the end of 2010. After a solid recovery for most of the past year, Britain’s economy has effectively flatlined since September and is now trailing well behind its developed-world peers. The recovery was weaker than expected by the Bank of England, making it likely that interest rates will stay at record lows at least until July, despite inflation running at twice their 2% target.

THE BANK of Japan is expected to maintain its ultra-loose monetary policy later in the day and indicate its readiness to ease further if damage from last month’s earthquake proves bigger than expected.

MARKETS:

FED Chairman Ben Bernanke signalled the central bank was in no rush to scale back its support for the economy, sparking a rally in equities and helping the Nasdaq close at a ten-year high of 2,869.88 yesterday. The FTSE closed little changed, keeping the benchmark index near a two-month high after a rebound in the British economy in the first quarter outweighed earnings at Barclays plc that disappointed investors.

ASIAN stocks rose overnight, sending the MSCI Asia Pacific index to its highest level since February, after the Fed renewed its pledge to stimulate US economic growth with low interest rates, and as companies from Advantest and Komatsu posted higher earnings.

FINANCIAL bookmakers expect leading European benchmark stock indexes to rally on Thursday, tracking gains on Wall Street after the US Federal Reserve signalled it would not raise interest rates any time soon.

CURRENCIES:

THE DOLLAR index, which tracks its performance against a basket of major currencies, fell to a level not seen since July 2008 as investors bet that loose US monetary policy will continue to drive money to riskier assets.

ENERGY:

US CRUDE prices were already rising on news of tightening gasoline stockpiles, when news that the Fed will keep interest rates low gave them a further boost. US prices have risen more than 20% so far this year and consumers in the world’s largest economy are starting to show signs of being hurt by higher fuel costs.

COMMODITIES:

THE PRICE of a troy ounce of gold smashed through the $1,518.6 record set on Monday to a new high of $1,530.3 after the Fed chairman told reporters that the Federal Open Markets Committee “expects the effect of commodity prices on inflation to be transient” and added that the recent up-tick in prices was merely a “short-term increase in inflation”. US silver futures leapt by as much as 6% on the news, and spot silver has gained 57% so far in 2011.

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