Global stocks reach a record high
Emerging market shares benefit from weak dollar
A WEAK US dollar combined with upbeat Chinese data to lift emerging market and Asian shares to levels not seen in more than two years and global stocks to an all-time high yesterday.
With the world’s most widely-used currency near 10-month lows, there has been an indirect loosening of financial conditions for emerging markets which also serves to support riskier assets such as equities.
After decent gains in Asia on the back of postive signs from global economic powerhouse China this week, MSCI’s world stocks index looked set for a ninth day of gains, which would mark its longest winning streak since October 2015.
“Most emerging markets are doing quite well at the moment, especially in Asia. The figures for China are positive,” said Marijke Zewuster, Head EM research, ABN Amro.
“If you look at the underlying figures they are relatively strong at the moment.”
The US dollar – which dropped sharply on Tuesday after the collapse of a healthcare bill dealt a blow to President Donald Trump’s ability to deliver promised fiscal reforms – could muster little more than tentative gains yesterday.
Against a basket of other major currencies, it was up 0.3 percent at 94.878 points, but still down around 7 percent on the year and within sight of Tuesday’s low of 94.476 points.
Analysts said the slight gains in the dollar were down to expectations that the European Central Bank and the Bank of Japan may strike dovish tones when they meet today, which could dent recent strength in the euro and the Japanese yen.
The ECB is expected to adjust their language, but substantive changes to their policy will likely come later in the year. The Bank of Japan is expected to raise its growth forecast, but cut its inflation outlook, underlining the cautious tone adopted recently by major central banks.
Boon to bonds
The euro inched down against the dollar, having made a 14-month top on Tuesday.
The diminished prospect of fiscal spending in the US has been a boon to bonds, especially as a run of soft US inflation readings had lessened the risk that the Federal Reserve would need to be aggressive in removing its stimulus.
Yields were broadly lower across the eurozone for a second straight day yesterday, with US Treasury yields trading near three-week lows.
“The question marks over US reform on the one hand, and the underlying economic growth momentum on the other hand are likely to keep the US within its current goldilocks scenario for longer,” wrote analysts at Morgan Stanley in a note.
While European stocks made a modest 0.4 percent gain, supported by a slew of upbeat earnings from firms, there were bigger gains in Asia and emerging markets.
Those gains come on the back of data which showed China’s economy expanding at a faster-than-expected 6.9 percent clip in the second quarter, setting the country on course to comfortably meet its 2017 growth target.
After making decent gains on Tuesday, oil prices edged lower after a rise in crude inventories and ongoing high output from Opec producers. – Reuters
An electronic stock board in Tokyo yesterday. Asian shares lifted to levels not seen in more than two years.