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FXstreet.com (London) - Equity markets have today broken through record highs on a sustained risk rally thanks to China and the Federal Reserve.

Chinese markets jumped overnight thanks to the biggest reform package from China since the 1990s. Ministers in Beijing have signalled their intention to cut restrictions on foreign investment in Chinese state-owned companies as well as a shoring up of farmers’ property rights.

The news saw the Hang Seng soar 2.73 percent to 23,660.06.

US markets then carried on where they left off last week, breaking through to new highs on the tail end of a risk-on rally triggered by Janet Yellen’s dovish testimony before the US Senate on Thursday. In her address to the senate committee on banking, housing and urban affairs Yellen gave a pre-released speech followed by a Q&A as part of her confirmation hearing before she replaces Ben Bernanke as chairman of the Federal Reserve on 31 January 2014. Yellen gave risk assets across the board a strong boost by focussing on her conviction that the Fed still has more to do to support the US economic recovery.

Anticipation that the Fed will remain cautious in its approach to any tapering of its USD 85bn-a-month asset purchase programme put the dollar under pressure but saw equity markets climb skywards. The S&P and Dow both broke through big psychological barriers today, above 1,800 and 16,000 respectively.

US Treasury yield curves also steepened on the anticipation of a delayed tapering of “QE Infinity”. The yield differential between 5 and 10 year Treasuries widened to its greatest amount in almost 2 years at 1.37 percent before narrowing to a still-high 1.34 percent.

Speaking this afternoon, New York Fed chairman William Dudley underlined Yellen’s comments from last week. “While growth in 2013 has been disappointing, I believe a good case can be made that the pace of growth will pick up some in 2014 and then somewhat more in 2015,” said Dudley before stressing that there remained work for the Fed to do.

EUR/USD is at USD1.3510 having risen 0.12 percent today.
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