(Reuters) A positive start in Europe nudged the main world share indexes and bond yields higher on Thursday after the U.S. Federal Reserve’s second interest rate cut of the year, while Japan and others kept their limited remaining powder dry.
The effects of the trade war has seen central banks around the world swing back into support mode this year, but the Fed’s central message on Wednesday was that it wasn’t expecting a major capitulation of the economy.
The Bank of Japan and Switzerland’s central bank both kept their deeply negative interest rates on hold. Brexit-bound Britain was expected to do the same later, while an outlier hike in Norway also came with a hint it would be the last.
It was enough to push London’s FTSE, Frankfurt’s Dax and Paris, Milan and Madrid up between 0.2 per cent and 0.8 per cent in early moves after a broadly subdued Asian session.
MSCI’s broadest index of Asia-Pacific shares had ended down 0.5 per cent as a one per cent fall in Hong Kong and 1.1 per cent drop in India offset 0.4 per cent gains on Japan’s Nikkei and from China’s bluechip stocks.
In line with the view of no economic Armageddon, the benchmark government bond yields which act as a proxy for global borrowing costs, also rose.
The more sensitive two-year U.S. yields inched up to 1.75 per cent and Europe’s key 10-year German Bund yield was up around two basis points albeit still below highs hit last week and at a mind-boggling -0.49 per cent.
“This is not ‘QE4ever’ as we’ve heard it called,” analysts at RBC said of the Fed’s decision and signals. “We shouldn’t go too far in putting on QE-like trades”.
In the currency market, Bank of Japan’s inaction saw the yen rise off a seven-week low versus an already lower dollar and stage something of a jump against the Australian dollar.
The BOJ had maintained its pledge to guide short-term interest rates at minus 0.1 per cent and the 10-year government bond yield around 0 per cent.
It also signalled it could add stimulus as early as next month, but some traders had expected a move on Thursday after the Fed’s rate cut.
Yen bulls took the currency as far as 107.79 to the U.S. dollar before it settled at 108.06 for a gain of 0.4 per cent on the day. The move against the Aussie dollar had been as large as one per cent.
“There were large yen-buying orders before the BOJ, and that just carried through,” said Tohru Sasaki, head of Japan markets research at J.P. Morgan Securities in Tokyo.
In contrast to Europe’s upward shuffle, U.S. stock futures were pointing to modest 0.1 per cent-0.2 per cent falls for Wall Street later.
The S&P 500 had reversed losses and ended broadly flat on Wednesday after Fed Chief, Jerome Powell, said he did not see an imminent recession or think the Fed will adopt negative rates. (Reuters/)
Edited by Abdullahi Mohammed/Tajudeen Atitebi