Equities take heart from cautious central banks
London — Japan’s Nikkei jumped to a near two-year high on Tuesday and European stock markets built on their biggest one-day gain in two months as central bankers gave a tempered message about growth and the chances of rises in interest rates.
Bank of England (BoE) governor Mark Carney, fresh from a meeting in which three colleagues on the bank’s policy committee voted for higher rates, knocked 0.5% off Britain’s pound by saying "now was not the time" to adjust borrowing costs.
Similarly, in a speech late in US time on Monday, Chicago Federal Reserve president Charles Evans said it may be worthwhile for the US central bank to wait until year-end to decide whether to raise rates again.
After jitters on hi-tech stocks in June, that leaves markets confident that major central banks will not be tightening the flow of cash that has kept markets rising for eight years, at a time when growth globally looks solid.
"Companies are in aggregate in robust health, and with all the cash from quantitative easing still washing around the system, there is a lack of alternatives for investors to put their money in," said Andy Sullivan a portfolio manager with GL Asset Management UK in London.
"Low rates — and the negative return on cash that they continue to generate — just sustain that dynamic."
The Nikkei closed 0.8% higher on the day, having earlier gained more than 1%. European markets gained between a quarter and 0.5% in early trading.
The technology sector, which has led US stock market gains in 2017, fell for a second week last week but they saw a strong rebound on Monday that helped push Wall Street indices to record highs.
"Hi-tech shares just went through a correction," said Mutsumi Kagawa, chief global strategist at Rakuten Securities.
"Valuation is not that expensive, standing far below their levels at the peak of the dot-com bubble.… Given that their profits are expected to see exponential growth in coming years, it is premature to say the rally in hi-tech shares is over."
The votes for higher rates at the BoE’s meeting last week propped up the pound after an almost 3c fall due to surprise election results two weeks ago.
But Carney, in a speech delayed from last week due to a fire in London, played down the chances of any swift move at a time when the hard data on the UK economy has been worsening.
The pound hit a one-week low of $1.2671 after his comments on rates.