World stocks hit one-year peak, dollar sags on weak U.S. data
LONDON: World stocks posted a new one-year high and the dollar sagged on Wednesday after weak U.S. productivity data was seen reducing the prospect of a rare interest rate hike among global central banks.
As the light dimmed in one of the few bright spots in the world economy, the United States, demand for bonds firmed – a factor highlighted by the Bank of England’s failure on Tuesday to prise enough debt from investors to meet its bond-buying target under plans to stimulate Britain’s economy..
With sub-par global growth and inflation keeping the onus on looser central bank policy, New Zealand, one of the 55 monetary authorities to ease policy since the start of 2015, was broadly expected to cut rates further on Thursday.
“Central banks look increasingly accommodative and no one seems to be going against that trend … which supports all asset prices,” said Anton Heese, head of European rates strategy at Morgan Stanley in London.
“The growth prospects for the U.S. economy are probably weaker than many anticipate.”
MSCI’s world stock index .MIWD00000PUS covering 46 markets advanced to its highest level seen in a year at 419.77, trumping a level hit on Tuesday.
MSCI’s broadest index of Asia-Pacific shares excluding Japan .MIAPJ0000PUS rose 0.3 percent to the highest level since August 2015.
European shares, meanwhile, edged down on weak earnings but have recovered nearly all the losses seen since Britain’s shock vote in a June 23 referendum to leave the European Union, which delivered a fresh blow to the bloc’s growth outlook.
The top share index in Germany, Europe’s biggest economy, which hit a 2016 high on Tuesday after a series of strong company earnings results, was dragged down by a slump in its largest utility E.ON after the firm reported more than 3 billion euros of losses for the first half of the year. [.EU]
U.S. RATE HIKE RECEDING?
The dollar index .DXY, which tracks the U.S. currency against a basket of six peers, retreated 0.4 percent to 95.782, while U.S. bond yields also fell on signs of worse-than-expected U.S. productivity data that could signal low growth and inflation in the long term.
The euro rose 0.3 percent to $1.1150 EUR=, extending its recovery from Friday’s one-week low of $1.1046.
“Low U.S. productivity growth could suggest the third- quarter growth can’t be fantastic. That in turn would mean the Fed will not need to raise rates,” said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management.
Additionally, the Bank of England’s reverse bond auction failed to meet its target on Tuesday, highlighting the scarcity of investors willing to sell from a dwindling pool of long-term bonds with positive yields.
The 10-year UK gilt yield sank to a record low of 0.54 percent GB10YT=RR after the BoE fell 52 million pounds ($68 million) short of its target to buy more than 1 billion pounds of long-dated UK government debt. That was the first time it failed to find enough sellers since it started its quantitative easing program in 2009.
The dollar’s weakness gave gold XAU= a leg up, with the precious metal gaining 0.9 percent to $1,352.26 an ounce.
Oil prices slipped after a surprise U.S. crude stockpile build rekindled worries about a persistent global glut.
Brent futures LCOc1 fell 1.5 percent to $44.30 per barrel, after losing 0.9 percent on Tuesday. U.S. crude CLc1 also slipped 1.5 percent to $42.09, extending Tuesday’s 0.6 percent decline.