Global equities take heart from signs of stimulus
Global markets are stronger on Monday as large economies indicate that they will prop up stalling growth, easing pressure on bonds and dampening safe-haven demand
London — Global equity markets rose on Monday on signs that large economies would look to prop up stalling growth with fresh stimulus measures, easing pressure on bonds and dampening demand for perceived safe-havens such as gold.
The hope of government action to stave off the fear of recession — triggered by an inversion in the US bond yield curve — grew as China’s central bank unveiled interest rate reforms expected to lower corporate borrowing costs.
The prospect of Germany’s coalition government ditching its balanced budget rule to take on new debt and launch stimulus steps also helped the mood, after boosting Wall Street shares on Friday.
Berlin could make available up to €50bn of extra spending, finance minister Olaf Scholz said on Sunday, adding that Germany has the fiscal strength to counter any future economic crisis “with full force”.
MSCI’s world equity index, which follows shares in 47 countries, gained 0.3%, powered by a 0.8% gain for the Euro Stoxx 600. Bourses in London, Frankfurt and Paris rose between 0.7% and 0.9%.
The optimism was set to spread to Wall Street, too, where futures gauges were pointing to gains of between 0.9% and 1%.
Earlier in the day, the People’s Bank of China's interest rate reforms — which it is said would help steer borrowing costs lower for companies and support a slowing economy — helped stocks in Shanghai rise 2.1%.
MSCI’s broadest index of Asia-Pacific shares outside Japan gained 1.1%.
Yet even as signs that large economies would act to support growth emboldened investors, some market players cautioned that the boost to markets from the expectation of stimulus was fragile.
“You have just got a little bit of portfolio readjustment, a resetting of expectations. The big question is whether it can last,” said Michael Hewson, chief market strategist at CMC Markets. “Talking about fiscal stimulus in Germany is one thing, doing it is something else.”
As investors tiptoed back to riskier assets, gold fell 1% to $1,499.30/oz, with US futures for the precious metal also down.
The Japanese yen was steady.
The dollar index, which measures the greenback against six large currencies, was marginally higher in Asia at 98.201, close to a two-week high reached on Friday.
Investors are focused on the annual meeting of central bankers in Jackson Hole, Wyoming, where US Federal Reserve chair Jerome Powell will speak at the symposium on Friday.
Analysts think Powell’s remarks will be aimed at reassuring nervous markets that the Fed will keep its easing stance and set the stage for more rate cuts.
“What Powell has to say is in focus as the discrepancy remains between what he said on interest rates and what the markets have come to expect the Fed will do,” said Junichi Ishikawa, senior forex strategist at IG Securities in Tokyo.
The shift towards appetite for riskier assets played out in bond markets, too.
Benchmark government debt in the eurozone rose off record lows, with Germany’s 10-year bond yield steady at -0.69%. Its 30-year bond yields also gained.
The 10-year US treasury yield stood at 1.526%, having pulled away from a three-year trough marked last week as fears of a global slowdown panicked markets.
In commodity markets, crude oil prices rose after an attack on a Saudi oil facility by Yemeni separatists on Saturday, with traders also looking for signs that China-US trade tension could ease.
Brent crude was up 65c, or about 1.1%, at $59.29 a barrel at 8.05am GMT.