World stocks rose while major government bond yields fell on Thursday after incoming U.S. Federal Reserve chief Janet Yellen signaled the bank’s massive stimulus policy would be needed for some time.
In remarks prepared for her nomination hearing before a U.S. Senate Banking Committee later in the day, Yellen said high unemployment, weak inflation and an economy running below potential meant the Fed had “more work to do”.
“The markets are happy with Yellen’s comments,” said Michael Leister, senior rates strategist at Commerzbank. “Central bank liquidity is there, growth is low but inflation is also low which is a pretty decent environment.”
Global markets have been buffeted since May when the Fed first suggested that it could begin tapering back the $85 billion a month it is spending on buying bonds to support growth.
Since then a run of mixed U.S. data has had investors constantly second-guessing the central bank’s intentions, so Yellen’s comments, by pushing any policy change potentially well into next year, have ended short-term uncertainty.
After the remarks, the Dow and S&P 500 indexes .DJI .SPX both shot to record highs on Wednesday with futures pointing to further gains ahead. MSCI’s world equity index, tracking shares across 45 nations, rose by 0.3 percent .MIWD00000PUS.
European share markets carried on the momentum in early trading, rising 0.8 percent .FTEU3 though data showing slower growth in Germany and an unexpected contraction in France dampened some of the positive sentiment.
The 17-nation euro zone emerged from recession in the second quarter and gross domestic product data for the July to September quarter, due at 1000 GMT (5:00 EDT), is forecast to show further tepid growth, of 0.2 percent. ECONEZ
A GDP reading for Japan showing growth slowed slightly less than forecast and comments from Finance Minister Taro Aso indicating the potential for more intervention to weaken the yen helped Tokyo’s Nikkei share average jump 2.1 percent to a near six-month closing high .N225.
CASH TAPS OPEN
In the debt market Yellen’s statement was another sign that central banks were set to keep policies loose, following comments from a top European Central bank official which opened the door to bond purchases to counter a fall in inflation.
German Bund futures were up 30 ticks on the day at 141.63, as the latest growth data strengthened the case for the ECB to remain accommodative, adding to gains made on the comments from ECB Executive Board member Peter Praet.
“The euro area recovery is very fragile and that will reinforce markets’ expectations that the ECB will maintain its accommodative stance for some time,” Nick Stamenkovic, bond strategist at RIA Capital Markets.
Benchmark 10-year U.S. Treasury yields which initially fell below 2.7 pct after Yellen’s statement were around 2.73 percent, down from New York’s close of 2.75 percent.
The dollar though was holding mostly steady against a basket of other major currencies .DXY and had strengthened against a yen weakened by the Japanese finance minister’s comments.
“The comments from Japan have put the focus back on the currency again … The market has been frustrated recently by Japanese policy implementation but that might change,” said Ian Stannard, head of European currency strategy at Morgan Stanley.
The greenback was up 0.5 percent at 99.815 yen, its highest level since mid-September.
Commodities were proving equally sensitive to the signals that the Fed will keeping pumping money into the system for some months to come.
Gold rose 0.4 percent to $1,283.50 an ounce, having snapping a four-day losing streak on Wednesday, while copper bounced off three-month lows to trade at $6,982 a tonne (1.1023 ton).
Brent oil was steadier, trading just above $107 per barrel, as investors balanced the dovish Yellen comments with expectations of a rise in U.S. crude inventories in weekly data due at 1600 GMT. <O/R>
REUTERS
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