Central bank caution beefs up stock gains
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[June 20, 2017]
By Patrick Graham
LONDON (Reuters) - 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
Bank of England Governor Mark Carney, fresh from a meeting which saw
three colleagues on the bank's policy committee vote for higher rates,
knocked half a percent off Britain's pound by saying "now was not the
time" to adjust borrowing costs.
Similarly, in a speech late in U.S. time on Monday, Chicago Federal
Reserve President Charles Evans said it may be worthwhile for the U.S.
central bank to wait until year-end to decide whether to raise rates
After jitters on hi-tech stocks this month, that leaves markets
confident that major central banks will not be tightening the flow of
cash which 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 percent higher on the day, having earlier gained
more than 1 percent.
European markets gained between a quarter and half a percent in early
The technology sector which has led U.S. stock market gains this year,
fell for a second week last week but they saw a strong rebound on Monday
that helped push Wall Street indexes to record highs.
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A man looks at an electronic board showing market indices outside a
brokerage in Tokyo, Japan, March 2, 2016. REUTERS/Thomas Peter
"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 Bank of England's meeting last
week propped up the pound after an almost 3 cent fall on the back of
surprise election results two weeks ago.
But Carney, in a speech delayed from last week due to 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.
(Additional reporting by Helen Reid and Vikram Subheder in LONDON
and Hideyuki Sano in TOKYO Editing by Jeremy Gaunt)
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