Stampede for stocks as central banks act on inflation
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[December 16, 2021] By
Marc Jones
LONDON (Reuters) - World stocks marched
back towards record highs on Thursday as traders waited to see if
Europe's top central banks, the ECB and Bank of England, would match the
U.S. Federal Reserve's upbeat message and cut stimulus.
There was more drama in Turkey as the record low lira plunged another 3%
ahead of its own central bank meeting, and Omicron numbers were
rocketing globally, but for once it wasn't infecting the major markets.
The pan-European STOXX 600 index jumped 1.4% early on led by the tech
and energy sectors. Wall Street futures were also pointing up again,
while the bond and currency markets seemed happy with the Fed's turbo
taper plan to end its pandemic-era bond purchases by March.
"If the Fed moves (hikes interest rates next year), it will be okay as
long as there is growth," said Barrow Hanley's Head of International
Equities Rand Wrighton, referring to bets U.S. rates could go up three
times before the end of 2022.
He also added that while the rapid spread of the Omicron COVID-19
variant might delay the timing of economic recoveries, it shouldn't
ultimately alter the broader trajectory.
The Fed had laid out a scenario in which the pandemic, despite the
Omicron variant, gives way to a benign set of economic conditions, with
inflation easing largely on its own, interest rates increasing slowly,
and unemployment staying low.
"The economy no longer needs increasing amounts of policy support," Fed
Chair Jerome Powell said.
Attention now turns to the ECB and BOE, which are also trying to balance
the need to support economies threatened by the virus with the need to
cut money printing to cool surging inflation.
The ECB's 1245 GMT policy statement is expected to see it dial back its
stimulus one more notch. But it is also expected to pledge ongoing
support, sticking to its long-held view that inflation will abate on its
own.
However, markets have ramped up bets that the BoE, which announces its
decision at 1200 GMT, could finally raise rates after data on Wednesday
showed British consumer price inflation at a more than 10-year high
following another strong surge.
"There is clearly more pressure on the BoE to get along with it and
start to normalise policy after having bottled it at the last meeting
... though the consensus is the BoE will hold fire and wait until the
fallout from the Omicron variant becomes clear," Tapas Strickland, a
director of economics at National Australia Bank, wrote in a note to
clients.
(Graphic on, Major Central Bank Policy Rates Over 15 yrs:
https://fingfx.thomsonreuters.com/
gfx/mkt/
zgvomrqxmvd/
Policy.PNG)
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An electronic stock quotation board is displayed inside a
conference hall in Tokyo, Japan November 1, 2021. REUTERS/Issei Kato
TURBULENT TURKEY
Sterling was up 0.2% to just under $1.33 having peaked for the year back in May
at $1.4250. The euro climbed a similar amount to just over $1.13 even though
forward-looking euro zone purchasing manager data came in weaker than expected.
Europe is facing a fourth wave of infections and many governments have been
encouraging citizens to stay home and avoid unnecessary social contact.
IHS Markit's Flash Composite Purchasing Managers' Index, a good indicator of
overall economic health, dropped to 53.4 in December from 55.4 in November, its
lowest since March and below the 54.0 predicted in a Reuters poll.
That headline number was dragged down by the services PMI, which sank to an
eight-month low of 53.3 from 55.9. While above the 50-mark separating growth
from contraction it missed the Reuters poll estimate for 54.1.
"The euro zone economy is being dealt yet another blow from COVID-19, with
rising infection levels dampening growth in the service sector in particular to
result in a disappointing end to 2021," said Chris Williamson, chief business
economist at IHS Markit.
It wasn't looking like a good Christmas for Turkey either.
The lira dropped to an all-time low beyond 15 against the dollar ahead of
another expected interest rate cut by the central bank, which has fallen in line
with President Tayyip Erdogan's risky new economic programme.
"We exited local markets in September - we went to zero," said Aegon Asset
Management's head of emerging market debt Jeffery Grills, blaming the direction
the country's economic and monetary policies were now taking.
The lira has halved in value this year.
(Graphic on, Lira volatility gauges sound crisis warning sound:
https://fingfx.thomsonreuters.com/
gfx/mkt/
movanqbbrpa/Pasted%20image%201639470660867.png)
Things were far smoother in the commodity markets however. Oil rose towards $75
supported by record U.S. implied demand and falling crude stockpiles [O/R],
while cooper which is highly sensitive to the health of the global economy
rebounded 2.2% after falls on Wednesday has taken its losses since October past
11%.
(Reporting by Marc Jones Additional reporting by Kevin Buckland in Tokyo;
Editing by Raissa Kasolowsky)
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