BOJ shock prompts breather for shares, U.S. inflation data up next
Send a link to a friend
[July 28, 2023] By
Huw Jones
LONDON (Reuters) - Global shares paused for breath on Friday as
investors digested monetary policy steps from Japan and inflation data
on both sides of the Atlantic in the hope of more evidence to persuade
central banks to end their rate hiking cycle.
The Bank of Japan made its yield curve control policy more flexible and
loosened its defence of a long-term interest rate cap, seen by investors
as prelude to a shift away from years of ultra-loose monetary policy.
The moves cap a big week for central banks, with interest rate rises in
the U.S. and Europe in recent days seen as the final moves in the most
aggressive hiking cycle in a generation, with the Bank of England
meeting next week.
The yen and benchmark Japanese bond yields jumped after the BOJ moves,
while hopes for stimulus had Chinese stocks heading for their best week
since last November.
Oil was on track for a fifth straight week of gains after news that the
U.S. economy grew faster than expected in the second quarter, but gold
was braced for its biggest weekly decline in five weeks.
The MSCI All Country stock index was little changed at 699 points, still
up more than 15% for 2023 as it returns to levels last seen in the
second quarter of 2022 on steady earnings and hopes of an end to
interest rate hikes.
"The general consensus is that inflation is slowing, but the big
question is whether it's slowing fast enough," said Mike Hewson, chief
markets strategist at CMC Markets.
"Equity markets are looking fairly positive on the basis that we are
closer to the end of their rate hiking cycle than we have ever been,"
Hewson said.
In Europe, the STOXX index of 600 companies was down 0.4% after hitting
a 17-month high on Thursday when the European Central Bank raised
interest rates to their highest level in over two decades and left open
the possibility of a pause at its next meeting.
Data showed that price growth in France cooled slightly more than
expected in July, though Spanish inflation was higher than expected in
the same month.
An ECB survey pointed to sticky inflation. German economic growth was
treading water in the second quarter, stuck in a twilight zone between
stagnation and recession, ING bank said. Euro zone businesses were also
gloomy.
The Dow Jones Industrial Average on Wall Street snapped its longest
winning streak since 1987 on Thursday after news of Japan's policy shift
was reported in advance by the Nikkei newspaper.
But a bull market remains in place, even if a little overbought, though
a modest correction would be no surprise, said Patrick Spencer, vice
chair of equities at Baird.
[to top of second column] |
A banknote of Japanese yen is seen in
this illustration picture taken June 15, 2022. REUTERS/Florence
Lo/Illustration/File Photo
"People are waiting for weakness in the market to re-enter as
earnings have been good. The reality is that the underlying economy,
especially in the States, not so much in Europe, still remains quite
strong," Spencer said.
U.S. stock futures were firmer, helped by after-market gains driven
by profits at Intel.
The U.S. Commerce Dept. is due to release its hotly anticipated
Personal Consumption Expenditures (PCE) report before the opening
bell on Wall Street.
BANK OF JAPAN SHIFT
The Bank of Japan's policy shift could have seismic implications for
global money flows, since a cheap yen that's been inexpensive to
borrow has been a mainstay of capital market funding for years, and
it now faces upward pressure from rising Japanese yields just as
global rates seem to peak.
Yields on euro zone government bonds surged on news of the Japanese
move which could make Japanese assets more attractive to domestic
investors.
Ten-year Japanese government bond yields hit a nine-year high of
0.575%, later trading at 0.540%, and the Nikkei dropped 0.4%, with
financial stocks surging in anticipation of higher rates.
The yen which had gained for days on speculation of a BOJ move, was
choppy after the announcement, before gaining to hit a week-high of
138.05 to the dollar.
It was trading at 139.71 during the European morning.
"We're really at the beginning of the end of really extreme monetary
accommodation but they still sound very cognisant of ... downside
risk to the economy and inflation outlook," said Sally Auld, chief
investment officer at JB Were in Sydney.
Ten-year U.S. Treasury yields, which had climbed overnight on
stronger-than-expected U.S. data and talk of Japan's tweak, stayed
above 4%.
The U.S. dollar was broadly stronger, especially against the
Australian dollar - down 1% to $0.66420 - which was weighed after
retail sales suffered their biggest fall of the year in June,
suggesting less need for another rate hike.
The euro eased 0.1% to $1.09650 on Friday.
Brent crude oil futures slipped slightly from three-month highs to
$83.93 a barrel.
(Editing by Shri Navaratnam, Christian Schmollinger and Kim Coghill)
[© 2023 Thomson Reuters. All rights
reserved.]
This material may not be published,
broadcast, rewritten or redistributed.
Thompson Reuters is solely responsible for this content. |