Global stocks hold highs in rate-cut bet
World stocks held near two-week highs as investors bet on a worldwide wave of central bank stimulus, with expectations growing that the US and the eurozone 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 easing if inflation failed to pick up.
But some caution seeped in after the previous day’s frenzy.
German and US bond yields, which hit record lows and two-year lows respectively after Draghi’s comments, inched around three basis points higher on the day.
European shares slipped off six-week highs and Wall Street futures indicated a slightly weaker opening on Wednesday.
Some of the trepidation is down to expectations that US Federal Reserve would follow the lead of the European Central Bank and open the door to future rate cuts.
“We see now that central banks will try assertively to generate inflation so this would reinforce our positivity on risk assets overall,” said Justin Onuekwusi, portfolio manager at Legal & General Investment Management.
Market sentiment has been buoyed also by news that Trump will meet Chinese leader 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 0.4pc, adding to Tuesday’s 1pc gain, as Asian shares excluding Japan followed the lead of their European and US counterparts to jump almost 2pc – their biggest one-day rally since January.
Tokyo and Shanghai also climbed almost 2pc while Australia’s main bourse hit an 11-year high. New York’s S&P500 jumped almost 1pc on Tuesday to approach recent record highs.
All eyes are now on the Fed, with chairman Jerome Powell holding a news conference after the announcement.
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 as early as July.
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