World shares under tech cloud, no lift from Japan's
dovish policy pledge
Send a link to a friend
[July 31, 2018]
By Sujata Rao
LONDON (Reuters) - Reassurance by the Bank
of Japan that it will keep its super-easy monetary policies in place for
an extended period pushed the yen and global bond yields lower on
Tuesday, though mounting concerns about the tech sector kept world
stocks under pressure.
A recent Reuters report that the BOJ could be debating scaling back its
massive stimulus program had sent Japanese bond yields to 1-1/2 year
highs, spilling into euro zone and U.S. debt markets. That helped push
the yen more than 2 percent off six-month lows hit against the dollar in
early July.
But while the BOJ announced some tweaks to its equity purchase program
and said its stimulus plan would be more flexible, the changes did not
show any inclination for radical shifts from its accommodative stance.
In response, yields on 10-year Japanese government bonds <JP10YT=RR fell
3 basis points, and 40-year yields slid nearly 9 basis points, pushing
10-year U.S. and German yields down around 2-3 bps.
"The BOJ is important in the sense of what they didn't do," said Andrew
Milligan, head of global strategy at Aberdeen Standard Investments in
Edinburgh.
"It was disappointing for some investors who thought they would be more
hawkish in their approach and the market reaction, with lower yen and
bond yields, shows that view which many people held, is mistaken."
Euro zone yields later inched up to trade around flat after data showed
inflation above forecast, though this was driven by higher energy costs.
Separate data revealed the bloc's economic growth had been slower than
expected in the second quarter of 2018.
The yen fell 0.4 percent to trade around 111.2 yen per dollar. Many
analysts now see it easing to around 113, especially if the U.S. Federal
Reserve delivers a hawkish interest rate message when its policy meeting
ends on Wednesday.
(For a graphic on 'Yen, bond yields fall after dovish BOJ pledge' click
https://reut.rs/2KethlI)
The dollar was flat against a basket of currencies but looks likely to
snap a three-month streak of gains as markets have more or less priced
in two more Fed rate hikes this year. The greenback had rallied more
than 5 percent in the second 2018 quarter.
The BOJ's dovish pledge failed to offer a boost to equities, however.
Markets have been roiled by growing concerns about the global tech
sector which had seemed relatively immune to trade tensions between the
United States, Europe and China.
Lackluster earnings from Netflix and Facebook have triggered losses
across the tech sector, with Wall Street's tech index shedding 6 percent
in the past three sessions.
[to top of second column] |
An electronic board showing the Nikkei share average is seen as
market prices are reflected in a glass window at the Tokyo Stock
Exchange (TSE) in Tokyo, Japan, February 6, 2018. REUTERS/Toru Hanai
- RC1535515100
(For a graphic on 'FAANGs losing bite?' click https://reut.rs/2KeglfE)
That pushed world stocks to one-week lows and even Japan's Nikkei failed to hold
on to earlier BOJ-fuelled gains. MSCI's index of Asia-Pacific tech shares fell
almost one percent.
European tech followed suit, losing 0.6 percent and lagging broader equities
that were flat on the day.
Wall Street was set for a modestly firmer open, futures signaled as investors
await second quarter earnings from the biggest company, iPhone maker Apple.
But the tech retreat has overshadowed an otherwise buoyant U.S. earnings season,
with average 22.6 percent profit growth and 83 percent of companies beating
consensus estimates so far.
Milligan attributed the setback to a re-assessment of share prices and summer
profit-taking rather than a fundamental loss of confidence in the sector. World
stocks are still set to end July with the best monthly returns since January, he
noted.
World stocks set for best month since Jan https://reut.rs/2K7PvFV
"The market is saying 'you are fairly valued around these prices so let's wait
for the next big story'. That will either be on the downside with trade tensions
in autumn or it could positive if Chinese stimulus turns out to be greater than
expected," Milligan added.
He was referring to Beijing's announcements, offering more fiscal stimulus to
counter the effect of U.S. trade tariffs and incentives for banks to lend to
small business.
Markets now await Wednesday's Fed policy statement to see if the expected two
rate hikes for the remainder of 2018 can be cemented in. In Britain, a 25
basis-point hike is now widely expected on Thursday, despite economic weakness
linked to Britain's looming European Union exit.
The British pound has already priced the move, David Riley, chief investment
strategist at BlueBay Asset Management, said, adding: "I think they will do it
but it will be one and done."
The pound firmed 0.2 percent to around $1.3159, having drifted off 10-month
troughs of $1.2955 touched earlier in July.
(Additional reporting by Swati Pandey in Sydney and Ritvik Carvalho in London;
Editing by Jon Boyle and Hugh Lawson)
[© 2018 Thomson Reuters. All rights
reserved.] Copyright 2018 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed.
Thompson Reuters is solely responsible for this content.
|