Global equities hit new highs On dovish Fed wagers

Listen to this Article Now

On Tuesday, global markets reached new highs on rising expectations that the United States Federal Reserve will delay tapering its bond purchases and maintain its expansive policy in the short term. However, European markets fell in early trade after Monday’s gains, with the STOXX 600 regional index down 0.1 percent but remaining near to its lifetime high, set in August.

By 0746 GMT, the MSCI world equity index was up 0.1 percent and on track for its eighth straight day of rises to new highs, while stock futures pointed to a favorable morning on Wall Street following the long Labor Day weekend. “Now that the tapering announcement from the Fed in September seems unlikely, we should expect ‘Goldilocks’ markets to continue to at least October or November,” said Masahiko Loo, portfolio manager at Alliance Bernstein (NYSE:AB).

The recent rise, which began in August following Fed Chair Jerome Powell’s dovish speech at the Jackson Hole Symposium, was boosted further on Friday by a shockingly dismal U.S. payrolls report. The US economy added 235,000 jobs in August, the fewest in seven months, as hiring in the leisure and hospitality sectors slowed, lowering expectations that the Fed may chose to reduce its monthly asset purchases sooner. Japanese stocks rose further on anticipation that the ruling Liberal Democratic Party will provide extra economic stimulus and comfortably win the forthcoming general election, following the resignation of unpopular Prime Minister Yoshihide Suga.

The Nikkei 225 index in Tokyo rose 0.9 percent, aided by an announcement about its reorganization, while the broader Topix index rose 1.1 percent to a 31-year high. Mainland Chinese equities extended gains, with the Shanghai Composite jumping 1.5 percent to its highest level since February, aided by Chinese trade statistics indicating that both exports and imports surged far faster than projected in August.

“The mood is improving on hopes the government will take measures to support the economy and that the monetary environment will be kept accommodative,” said Wang Shenshen, senior strategist at Mizuho Securities. The euro advanced 0.1 percent to $1.188 in the currency market, a touch lower than Friday’s one-month high but still strongly supported ahead of the European Central Bank’s policy meeting on Thursday.

The ECB is thought to be discussing a reduction in stimulus, with analysts expecting purchases under the ECB’s Pandemic Emergency Purchase Program (PEPP) to drop to 60 billion euros per month from the current 80 billion euros. According to ING strategist Chris Turner, Friday’s weak US jobs report and Powell’s dovish comments last month have taken a toll on the market. “some of the sting out of the dollar’s upside”.

“Even the unloved EUR has found a few friends over recent weeks as hawks on the ECB demand a reassessment of pandemic support levels,” he noted.

The Australian dollar surged initially after the Reserve Bank of Australia announced that it will proceed with its scheduled tapering of bond purchases, but it swiftly lost those gains after the bank stated that it needed to see sustained higher inflation before raising interest rates.

The Australian dollar was recently 0.1 percent lower at $0.7431, down from a one-and-a-half-month peak achieved on Friday. Oil prices were mixed as Saudi Arabia slashed crude contract prices for Asia, reigniting fears about demand. [O/R]. Brent crude prices were up 0.2 percent at $72.4 per barrel, while US crude futures were down 0.5 percent at $68.