US Fed’s comments rally world markets
Bank will raise rates slowly
WORLD stock markets rose to their highest level in more than two weeks yesterday as reassuring comments from the US Federal Reserve chief, an easing in trade-war jitters and a bid by China’s central bank to stabilise the yuan lifted risk appetite.
A stronger-than-expected German business sentiment survey added to the upbeat mood in Europe, with stock markets in Paris and Frankfurt up 0.4 percent each. British markets were closed for a public holiday.
MSCI’s broadest index of Asia-Pacific shares outside Japan rose 1.1 percent, and Japan’s blue-chip Nikkei closed at a 10-week high. That left the MSCI All-Country World Index, which tracks shares in 47 countries, at its highest level since August 9.
Comments from Fed chief Jerome Powell at the Jackson Hole symposium on Friday, affirming that the US central bank was sticking with its strategy of gradual rate hikes to protect economic growth sparked a rally in stocks that gathered pace as a new week swung into gear.
Helping to brighten the mood, US and Mexican trade negotiators are seen as close to reaching a common position on the North American Free Trade Agreement, with Mexican Economy Minister Ildefonso Guajardo saying on Sunday that talks have “continued to make progress”.
A strengthening in the Chinese yuan, one causality of heightened trade tensions, also boosted sentiment in world markets.
The yuan hit a two-and-ahalf-week high versus the dollar after China’s central bank revived a “counter-cyclical factor” in its daily fixing to support the currency, arresting a record 10-week slide that has rattled global markets and irritated Washington.
The announcement was seen as the latest signal from the People’s Bank of China that it is not comfortable with further depreciation in the yuan, which could spark capital outflows from the cooling economy.
A firmer tone in the currency helped to lift Chinese shares to two-week highs, with the Shanghai Composite index closing up 1.9 percent.
The move also raised hopes that a yuan recovery could boost companies with significant dollar-denominated costs, such as airlines. In Europe, data yesterday showed that German business morale improved by much more than expected this month, suggesting that concerns about a global trade war among company executives in Europe’s largest economy have eased.
The Munich-based Ifo economic institute said its business climate index jumped to 103.8 after 101.7 in the previous month.