Thursday 08:00 BST. European stocks are tracking an upbeat performance in Asia as investors welcome the prospect of central banks keeping interest rates around historically meagre levels.
The dollar is weaker, helping to lift buck-denominated commodity prices — London-traded copper is at five week highs — though gold is giving back some of its recent gains.
After the FTSE Asia-Pacific index jumped 0.8 per cent, the pan-European Stoxx 600 is up 0.5 per cent. Energy stocks are buoyed as the price of Brent crude adds 1 per cent to $47.28 a barrel following a report on Wednesday that showed falling US oil stockpiles.
US index futures suggest the S&P 500 will inch just 1 point lower to 2,162 when the opening bell rings later in New York.
The Wall Street benchmark rose 23 points in the previous session after traders reacted positively to the Federal Reserve’s decision to keep official short term interest rates unchanged at 0.25 to 0.50 per cent.
The US central bank said the case for a rate increase “has strengthened”, providing markets with a strong hint that the December policy meeting was in play. Futures are now pricing in a 61.2 per cent chance of a 25 basis point hike at the Fed’s pre-Christmas meeting, up from 52.3 a week ago, according to Bloomberg calculations.
But the Fed also reduced its US economic growth forecasts, and consequently its so-called dot plot suggests the number of rate rises in 2017 has been scaled back to two rather than the three pencilled in June.
The US 2-year bond yield, which is particularly sensitive to monetary policy perceptions, is off 2 basis points to 0.77 per cent, having spiked at one point on Wednesday to 0.85 per cent. The 10-year Treasury yield, which hit 1.75 last week, is now 1.64 per cent, down 2bp on the day, and equivalent maturity German Bunds are slipping 5bp to minus 0.04 per cent.
Most equity investors like the idea of US borrowing costs staying at low levels for longer, hence the strength across global stock markets.
“The gradual approach to raising US rates, the slower path over the medium-term and the backdrop of moderate growth and well-contained inflation should prove a positive for riskier assets,” said Brian Martin at ANZ Banking Group.
But the dollar is coming under pressure as the monetary policy divergence between the Fed and its peers is deemed not as great as expected.
“As we have argued, a necessary condition for the dollar to rally is a more consistent pick-up in US data so the market can price a faster pace of hikes in 2017/18. Until then any rallies will seem shallow particularly with the market already pricing a 60 per cent chance of a hike,” said analysts at Bank of America Merrill Lynch.
The dollar index, a measure of the US currency against a basket of peers, is 0.4 per cent lower at 95.25, having fallen 0.4 per cent on Wednesday. As well as the slower path for future US rate rises, a rally in the yen also pressured the greenback.
The Japanese unit is steady at ¥100.37 per buck, but surged 1.4 per cent on Wednesday after the Bank of Japan kept interest rates unchanged but introduced a number of tweaks to monetary policy.
The adjustments, which included capping yields on 10-year Japanese government bonds at zero per cent and allowing inflation to overshoot the BoJ’s 2 per cent target, met with a strong reaction from stocks on Wednesday, but an adverse one from the currency market.
“It’s all a bit disappointing,” said Frederic Neumann at HSBC. “Investors have started to doubt the sustainability and scalability of the central bank’s monetary framework, in particular the quantitative increase in the monetary base. We believe nothing unveiled [on Wednesday] will remove those doubts,” he added.
The Japanese stock and bond markets were closed on Thursday for a public holiday, but the broad Topix benchmark rallied 2.7 per cent on Wednesday after the BoJ news.
Those Asia-Pacific bourses that were open were lifted by Wall Street’s bounce. Australia’s S&P/ASX 200 rose 0.7 per cent, with a strong performance by gold miners. The bullion jumped 1.4 per cent in the wake of the Fed’s decision, but is currently easing 0.3 per cent to $1,333 an ounce.
Hong Kong’s Hang Seng gained 0.4 per cent, while on the mainland, China’s Shanghai Composite and the tech-heavy Shenzhen Composite were both up 0.5 per cent.
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