Breaking News
0

Central banks' dovish cooing keeps world stocks lulled near two-week highs

Stock MarketsJun 19, 2019 04:51AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. A man is reflected on an electronic board showing a graph analyzing recent change of Nikkei stock index outside a brokerage in Tokyo

By Sujata Rao

LONDON (Reuters) - World stocks held near two-week highs on Wednesday as investors bet on a worldwide wave of central bank stimulus, with expectations building that the United States and the euro zone may deliver interest rate cuts as early as July.

Markets have been fired up by European Central Bank President Mario Draghi's Tuesday volte-face on policy easing. In one of the biggest policy reversals of his eight-year tenure, Draghi flagged more policy easing if inflation failed to pick up.

However, German and U.S. bond yields which hit record lows and two-year lows respectively after the speech, inched higher to trade just off those levels. European shares too slipped off six-week highs, and Wall Street futures indicated a slightly weaker open.

Some of the trepidation is down to the U.S. Federal Reserve's ongoing meeting, with a decision due at 1800 GMT. It is widely expected to follow the lead of the European Central Bank and open the door to future rate cuts.

"It should be really clear to absolutely everyone that this is a monetary policy turning point... Those rate cut expectations have now shifted much closer," said Ulrich Leuchtmann, head of currency and emerging markets research at Commerzbank (DE:CBKG).

"Of course the other question is: What is the Fed doing? If the Fed takes the fundamental risk of political pressure seriously, they cannot do anything today," he said, noting that President Donald Trump's strident calls for lower interest rates posed a dilemma for the Fed.

But market sentiment has been buoyed also by news that Trump will meet China's Xi Jinping at the G20 summit this month, even though many doubt the two men can reach a breakthrough on ending their trade dispute.

MSCI's global equity index rose 0.4%, adding to Tuesday's 1% gain, as Asian shares excluding Japan followed the lead of their European and U.S. counterparts to jump almost 2% - their biggest one-day rally since January.

Tokyo and Shanghai too climbed almost 2% while Australia's main bourse hit an 11-year high.

All eyes are now on the Fed, with Chairman Jerome Powell holding a news conference after the announcement.

Futures are almost fully priced for a quarter-point easing in July and imply more than 60 basis points of cuts by Christmas.

As for Europe, markets have almost fully priced a cut in September, though some analysts, such as those at Germany's Commerzbank, now say rates will be cut in July, rather than in the last quarter of the year as they had predicted earlier.

ECB sources told Reuters Draghi had flagged his measures so strongly that other board members would be unable to disagree with him at their July 25 meeting.

Yet all the clamor for easing creates risks policymakers will disappoint.

"Market expectations for a dovish shift are nearly universal, the only question seems to be the degree," Blake Gwinn, head of front-end rates at NatWest Markets, said, referring to the Fed.

"Markets will be looking for validation of this pricing," he added. "We think this represents a fairly high bar for the Fed to deliver a dovish surprise."

SUB-ZERO YIELDS

BofA Merrill Lynch's latest fund manager survey spoke volumes about the sea change in sentiment. It showed investors were dumping stocks and had upped bond allocations to nearly eight-year highs. They also had crowded into safe-haven U.S. Treasury bonds and cash.

The prospect of more policy easing and worries for the growth outlook kept German yields close to the minus 0.33% record low hit on Tuesday, while Japanese yields sank to the lowest since August 2016 at -0.145%.

Yields on the U.S. 10-year note reached the lowest since September 2017 at 2.016%, a world away from the 3.25% top touched in November last year.

The fallout in currencies has been significantly less, mostly because it is hard for one to gain when all the major central banks are under pressure to ease.

The euro did pull back after Draghi's comments, but at $1.118 it touched only a two-week low.

The dollar eased slightly on the yen to 108.3, but was flat versus a basket of currencies. The yuan touched three-week highs versus the dollar on the trade news.

In commodities, the rate-cut buzz kept gold near 14-month highs at $1,345.16 per ounce. Brent crude futures too rose 0.5%, thanks to the stimulus bets and hopes of a thaw in Sino-U.S. ties.

Central banks' dovish cooing keeps world stocks lulled near two-week highs
 

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments
John Tierney
John Tierney Jun 19, 2019 3:25AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Global easing now
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email