Investors Take On More Risk After Central Bank Signals -- Update
June 29 2017 - 6:05AM
Dow Jones News
By Jon Sindreu
Investors continued to bet on risky assets Thursday, on signs
that central bankers are confident enough about economic growth to
start tightening policy.
The Stoxx Europe 600 edged down 0.1% in the European morning,
despite a positive opening, but the banking sector--one of
investors' favorite ways to bet on higher growth and inflation--was
up 1.4%. By contrast, utilities and food and beverage shares,
sectors considered to be safer, were both down about 0.8%.
The FTSE 100 rose 0.5% and futures pointed to a 0.3% opening
gain for the S&P 500. In Asia, Japan's Nikkei Stock Average,
Hong Kong's Hang Seng and Australia's S&P/ASX 200 rose 0.5%, 1%
and 1.1% respectively.
Bank shares got a further bump by the Federal Reserve's decision
Wednesday to allow all major U.S. financial institutions to ramp up
dividend payouts and share buybacks.
Investors were already broadly confident on economic growth, but
global inflation has remained weak, leading markets to doubt
whether policy makers will be able to start rolling back their
easy-money policies. A raft of statements Wednesday by policy
makers at the European Central Bank, the Bank of England and the
Bank of Canada, however, convinced many that the progressive end of
monetary stimulus is coming nearer.
While ECB officials later left investors with mixed signals,
Thursday's moves in bonds and currencies confirmed that investors
now expect interest rates to be higher in the near future.
They have "concluded that the ECB must have intended to push
investors closer toward normalization rather than further from it,"
said Stephen Gallo, European head of foreign-exchange strategy at
BMO Financial Group. "From my perspective, this is true even when
we account for the attempt by ECB sources yesterday to dilute some
of the hawkishness."
Yields on 10-year German and British bond yields rose to 0.414%
and 1.202% respectively, compared with the previous day's closes of
0.363% and 1.15%. Even 10-year Treasury felt the strength of the
tide and edged up to 2.246% from 2.215%. Bond yields move opposite
to prices.
Higher returns in Europe and the U.K. bolstered the euro and the
pound, which were both up roughly 0.4% against the U.S. dollar. The
WSJ Dollar Index, which measures the dollar against a basket of
currencies, was down 0.2% and is below where it was before Donald
Trump's election on Nov. 8.
Some analysts warned that money managers may have read too much
into Wednesday's statements.
"The market sort of got carried away, there was very little new
information in it," said Willem Verhagen, a senior economist at NN
Investment Partners. "When we are in the territory of
unconventional monetary policy, expectations of what the central
bank will do in the future have no anchor."
The key test for investors is whether economic data and
corporate profits come in strong enough to justify borrowing costs
going up, analysts said. While optimism from central bankers can
give stocks a boost, higher rates can also make them look less
attractive.
"What's surprising is that equities continue to take it so
well," said Philippe Gijsels, chief strategy officer at BNP Paribas
Fortis, who believes it is now time to cash in some of the gains
made this year in European equities.
"Markets have benefited enormously from the very loose monetary
policy, it would be logical to assume that if this stops you'll
have an impact on markets," he added.
Yet, the positive reaction of the market also fuels hopes that
stocks have further to go, especially if President Donald Trump can
deliver on his pledge to cut taxes for corporations.
"We think most investors don't want to miss out on a bull
market," said Myra Natter, wealth adviser at Titus Wealth
Management. "If we see that the tax cuts are moving along and
people see they are being implemented, this will continue being an
upward bias in the market."
Crude-oil prices joined the global rally despite data showing an
increase in U.S. stockpiles. The front-month futures for Brent
crude, the international benchmark, gained 0.7% to trade at $47.85
a barrel.
Gold, a traditional haven, was down 0.2%.
Kenan Machado contributed to this article.
Write to Jon Sindreu at jon.sindreu@wsj.com
(END) Dow Jones Newswires
June 29, 2017 05:50 ET (09:50 GMT)
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