BOJ rate surprise lifts world stocks
ahead of Fed
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[September 21, 2016]
By Vikram Subhedar
LONDON (Reuters) - World stocks rose on
Wednesday, led by a surge in bank shares, while the yen weakened after
the Bank of Japan surprised markets by adopting a target for long-term
interest rates.
With the global economy showing few signs of rebounding and investors
fretting about the limits of major central banks' easing, the BOJ's move
came as a welcome relief for markets.
The focus now shifts to the U.S. Federal Reserve policy decision later
on Wednesday, with weaker-than-expected economic data prompting
investors to call off bets on a rate hike.
Europe's STOXX 600 was up 1 percent in early trading with euro zone
banking shares up nearly 3 percent and poised for their best day in more
than two months.
This came after the Japanese central bank maintained its 0.1 percent
negative interest rate, but abandoned its base money target and instead
set a "yield curve control" under which it will buy long-term government
bonds to keep 10-year bond yields around current levels of zero percent.
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"This is positive for the equity market too, especially bank stocks,"
said Michael Moen, fixed income investment manager at Aberdeen Asset
Management.
"They've acknowledged the negative rate policy can hurt bank profits,
and these measures they've announced today are in a way trying to offset
some of that negative impact."
Scepticism about the sustainability of Tuesday's moves, however,
remains, particularly for the yen, which nevertheless clawed back much
of its earlier loss.
"When the dust settles, we think this will be seen as a disappointment.
The BOJ may have changed the interim target to the yield curve, but the
instruments it is using to hit it are basically unchanged, barring minor
tweaks," said Adam Cole, head of G10 FX strategy at RBC Capital Markets.
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Traders work at their desks in front of the German share price
index, DAX board, at the stock exchange in Frankfurt, Germany,
September 19, 2016. REUTERS/Staff/Remote
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The U.S. dollar rose as high as 102.78 yen, but in early European
trading had slipped back to 101.79 yen.
Futures markets pointed to Wall Street opening up around 0.5
percent, with attention set to switch to the Fed.
Recent hawkish and dovish comments from Fed officials have stoked
volatility in financial markets, although consensus is now centered
on the Fed raising rates in December.
In commodities, the brighter mood on risky assets saw U.S. crude oil
futures up 1.8 percent to $46.71 a barrel.
(Additional reporting by Jamie McGeever and Saikat Chatterjee in
HONG KONG; Editing by Alexander Smith)
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