LONDON (Reuters) – Global equities have risen, global bond yields have fallen, and the dollar has weakened after Federal Reserve Chairman Jerome Powell has confirmed his expectations for the upcoming reduction in global bond yields. US interest by the Fed.
PHOTO FILE: People walk in the lobby of the London Stock Exchange in London, UK, August 25, 2015. REUTERS / Suzanne Plunkett / photo of the file
The pan-European STOXX 600 climbed 0.2% after dropping 1.4% in the last four sessions. German DAX futures rose and UK FTSE futures rose 0.3%. The oil and gas sector as well as defensive stocks led the gains.
On his first day in Congress on Wednesday, Powell confirmed that the US economy was still threatened by disappointing industrial activity, controlled inflation and a smoldering trade war, and said the Fed was ready to "act as appropriate. "
"Powell's statement confirmed that we were going in the direction of a reduction cycle," said Charles Zerah, fund manager at Carmignac. "The main question now is: are investors paying too much for rate cuts by the end of the year? Depending on your perception of the stock markets, the risk is that market prices may be disappointing. "
Europe's gains follow strong increases in Asia, where MSCI's largest Asia-Pacific equity index, excluding Japan, advanced 1%. Japan's Nikkei added 0.5%.
US futures have signaled a stronger opening for Wall Street, with E-Minis for the S & P500 at 0.2%.
US stocks ended higher on Wednesday and the S & P 500 briefly crossed the 3,000 mark for the first time after Powell's remarks.
Some wondered about the momentum behind the last rally.
"We have been in the camp for a year, and no doubt wrongly, that the Fed is becoming more accommodative and that lowering rates is not a good thing for risky assets," said Neil Dwane, global strategist and fund manager. portfolio at Allianz Global Investors. Nine of the Fed's twelve rate reduction cycles did not end the recession, he noted.
"Given that we are in the longest expansion and we only had 2.5% rates, it begs the question: is a soft landing possible?"
A strong US employment report released in June earlier this month reinforced expectations that the Fed would be more likely to cut by 25 basis points than 50. However, the cautious stance of Powell helped fuel the bets on stronger relaxation at his next political meeting on July 30-31.
The probability of a 50 basis point cut fell from 3.3% Tuesday to 27.6%, according to the CME Group's FedWatch tool.
The minutes of the last Fed meeting in mid-June, however, showed that some politicians felt there was still no strong reason for easing.
The outlook for rate cuts also weighed on the dollar. The dollar index versus a basket of six major currencies fell 0.2% to 96.929, extending losses for a second consecutive session after hitting a three-week high on Tuesday.
The dollar was down 0.4% to 108.03 yen, forcing a six-week high to 108.990 the day before. It was still far from the six-month low of 106,780 expected on June 25. The euro rose 0.23% to 1.1275 dollar.
In the fixed income markets, the 10-year US Treasury yield fell to 2.037% after falling Wednesday from its two-week high of 2.113%.
Yields on eurozone government bonds have also declined. The yield on 10-year German government bonds fell to minus 0.32%, while monetary easing in the eurozone would not be far from the Fed.
In commodities, US crude oil futures reached their highest level in six weeks when oil rigs in the Gulf of Mexico were evacuated before a storm, while an oil tanker incident Britain in the Middle East has highlighted persistent tensions in the region.
US crude oil futures gained 42 cents to trade at $ 60.84 per barrel. Futures contracts on Brent rose 47 cents to $ 67.48.
The spot gold price reached $ 1,426 an ounce, its highest level since July 3, thanks to heightened expectations of a rate cut by the Fed.
Report by Karin Strohecker; additional reports by Sujata Rao and Marc Jones in London and Shinichi Saoshiro in Tokyo; edited by Larry King