Monday 11:20 BST. Global equities are at 11-month highs and Wall Street is eyeing another record as investors bet central banks will keep borrowing costs at historically low levels.
The FTSE All-World equity index is adding 0.1 per cent to 275.01, its best level since mid-August 2015 following a broadly positive Asia-Pacific session and as US futures firm.
Some of the shine has come off the European session, however, as banking stocks relapse and energy groups suffer from a falling oil price.
Monetary policy remains in focus.
New York Federal Reserve president William Dudley said on Monday that the US central bank should be cautious in raising interest rates given the potential damage to the world’s biggest economy from a stronger dollar and any longer-term fallout from Brexit.
Data released at the end of last week showed US growth in the second quarter was softer than expected and the probability of the Fed increasing interest rates by another 25 basis points in December has fallen from 48 per cent a week ago to 36 per cent.
The central banks of Japan and the eurozone have a policy of negative interest rates and are undertaking asset purchases to try and boost inflation. Sterling is down 0.4 per cent to $1.3172 as the Bank of England is expected on Thursday to cut borrowing costs to a fresh record low of 0.25 per cent to combat a weakening of the economy following the UK’s vote to leave the EU.
These uber-loose monetary policies are suppressing bond yields and making equities relatively more attractive.
The yield on the 10-year Treasury is 1.48 per cent, up 2 basis points on the day, but only 16bp above its most meagre offering ever. US index futures suggest the S&P 500 will climb 2 points to 2,176, in line for another record close.
German 10-year Bund yields are adding 2bp to minus 0.10 per cent as the pan-European Stoxx 600 slips 0.4 per cent. The European Banks index is down 1.9 per cent following a stress test for the sector.
Energy stocks are losing ground as Brent crude slides 1.2 per cent to $42.99 a barrel. The oil benchmark last week fell to a three-month low of $41.80 amid lingering oversupply concerns.
But miners are on the front foot as base metal prices firm, supported by some encouraging economic data out of China.
The official Purchasing Managers’ Index of factory activity slipped into contractionary territory in July, to a reading of 49.9 from June’s 50 — the level that separates expansion from contraction.
But the privately prepared Caixin-Markit PMI gauge, which rose from 48.6 in June to 50.6 in July, beat expectations. The survey focuses on smaller-scale private companies, unlike the official focus on state-owned enterprises in heavy industry.
The soft official manufacturing PMI data suggested activity was affected by recent severe flooding in China, noted Commerzbank strategist Zhou Hao. But he added: “In the meantime, the non-manufacturing PMI edged up by 0.2 percentage points to 53.9 in July, hinting that the services industry continues to gain traction.”
Privately compiled PMI readings for other north Asian countries were on the soft side, with South Korea’s PMI sliding to 50.1 from 50.5 in June and Japan’s manufacturing industry contracting for a fifth straight month.
But the region’s stock markets chose to focus on the prospects for continued central bank assistance and the firm US equity futures.
Japan’s Nikkei 225 added 0.4 per cent, Seoul’s Kospi climbed 0.7 per cent and Hong Kong’s Hang Seng rose 1.1 per cent.
Mainland China was an underperformer, with the Shanghai Composite off 0.9 per cent as investors continued to fret about a regulatory clampdown on financial products that encourage speculation.
In currencies, the Japanese yen, which surged 3 per cent on Friday after the BoJ’s stimulus measures disappointed the market, is easing 0.2 per cent to ¥102.22.
The dollar index, a measure of the US currency against a basket of peers, is up 0.1 per cent at 95.65 as the euro slips 0.1 per cent to $1.1163 following a survey showing growth in the eurozone’s manufacturing sector weakened in July.
Additional reporting by Peter Wells in Hong Kong
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