ASX to soar after US says no to tapering

The S&P / ASX 200 Index (Index: ^AXJO) (ASX:XJO) is set to soar on Thursday, after the US Federal Open Market Committee (FOMC) surprised the markets by refraining from reducing its bond buying program.

The US S&P 500 soared to a record high, rising 1.2% to 1,725.52, while the Dow Jones Industrial Average rose 1% to 15,676.94. The ASX SPI Futures is indicating a 1.2% rise in early morning trade, while the Australian dollar rocketed past 95 US cents.

The FOMC said it needed to see more evidence of lasting improvement in the US economy and warning that an increase in interest rates threatened to stall the expansion. Chairman Ben Bernanke said, “Conditions in the job market today are still far from what all of us would like to see.”

Growth forecasts for this year and next have been cut, suggesting the US economy is still struggling to recover. Mr Bernanke suggested the US Federal Reserve could move to taper its quantitative easing program later this year, if the economy shows further signs of improving.

Spot gold prices jumped US$55.61 to US$1,366 an ounce, while oil rose more than 2.5%. That should see a strong performance from Australia’s gold producers, including Newcrest Mining (ASX: NCM), Kingsgate Consolidated (ASX: KCN), Regis Resources (ASX: RRL), and Beadell Resources (ASX: BDR). The bad news is that companies exposed to the US economy are likely to have to wait longer to see higher levels of growth. Markets around the globe will see increased levels of volatility as they try and work out whether the FOMC will begin to reduce its bond buying program in the coming months, or much later.

Foolish takeaway

Foolish investors will know that no matter what the US central bank decides to do, the focus remains of investing in great companies which will still be going strong for many years to come.

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Motley Fool writer/analyst Mike King owns shares in Kingsgate Consolidated.

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