Global markets recover as Fed takes dovish stance

London — World stock markets were back on the rise on Thursday as the US Federal Reserve signalled it was in no rush to taper stimulus and reassurances from Beijing saw beaten-up Chinese stocks leap off the canvas.

There was also promising news on the long-awaited US infrastructure bill as the Senate voted overnight to move ahead on the $1.2-trillion deal, as well as it being a packed day of earnings and economic data.

The rebound in China’s markets included a near 10% bounce in tech giant Tencent — its second biggest in almost nearly a decade — after reports that regulators had called banks overnight to ease concerns about the recent crackdown on tech and education sectors, and on overseas listings.

“Beijing is working hard to stem the growing concerns surrounding its regulatory crackdown,” said Alvin Tan, RBC’s head of Asia FX strategy. 

Gains pushed blue-chip shares up 1.6%, though they were still down 5% for the week, while the Shanghai Composite Index added 1.2%.

European stocks hit all-time highs though as strong earnings from Total and Shell, Airbus and others offset a drop of almost 5% by Swiss bank Credit Suisse — it said profit plunged almost 80% in the wake of Archegos and Greensill scandals.

The MSCI’s broadest index of emerging market shares bounced 2% higher, having slid to its lowest since early December on Wednesday. Japan’s Nikkei edged up 0.7%, while South Korea finished 0.2% firmer.

S&P 500 futures were up a more subdued 0.1%. Nasdaq futures dipped 0.1%, perhaps weighed by a retreat in Facebook stock.

Facebook had shed 3.5% in the aftermarket moves on Wednesday after it warned that revenue growth would “decelerate significantly”, even as it reported strong ad sales.

Markets had see-sawed overnight when the Fed said progress had been made towards its economic goals, seeming to bring nearer the day when it might start tapering its massive asset-buying campaign.

Peak growth was also a nagging theme. Data due later on Thursday is expected to show the US economy is likely to have expanded at the fastest pace in 38 years in the past quarter as government aid and vaccinations fuelled spending.

However, Fed chair Jerome Powell took a dovish turn by emphasising that they were “some ways away” from substantial progress on jobs that is needed to start tapering.

There are three more [US] job reports before the November meeting, and two more between the November and December meetings,” said JPMorgan economist Michael Feroli. “We continue to expect a December announcement [on tapering], though we see a risk it could occur in November.”

While the next Fed meeting is not until late September, the annual Jackson Hole policy symposium is on Aug. 26-28, meaning the tapering talk won’t die down.

The net result for bonds was that US 10-year yields were steady at 1.24%, not far from recent five-month lows of 1.128%.

“My view is that the Fed policy rate will have a 1% handle” longer term, said Steven Oh, PineBridge’s global head of credit and fixed income. “I don’t see an outcome where we see runaway inflation by any stretch of the imagination.”

The pattern was the same for the dollar, which edged up on the FOMC statement only to flag on Powell's remarks and then dribble lower in Asian and European trading.

That left the euro up at $1.1871, and some way from its recent four-month trough of $1.1750.

The dollar faded to 109.75 yen, from a top of 110.58 early in the week. All of which saw the dollar index dip to 92.032, off its recent peak of 93.194.

In commodity markets, China-sensitive copper rose 1.25% and gold nudged up to $1,817 an ounce, but remains in the $30 range of the past 17 sessions.

Oil prices also firmed after data showed US crude inventories fell to pre-pandemic levels, bringing the market’s focus back to tight supplies rather than rising Covid-19 infections.

Reuters