Stocks rally ahead of crucial central bank meetings

AFP

Global stock markets rallied on Monday, with all eyes on central bankers ahead of key meetings in the United States and Japan later in the week.
Concern that years of cheap cash could be coming to an end has roiled markets this month, with conflicting comments from top US Federal Reserve officials over the need for an interest rate hike fuelling uncertainty.
A lack of any concrete promises from Tokyo about the Bank of Japan’s plans has also been cause for worry. Years of bond-buying and government spending have had little impact on the country’s torpid economy.
“We’ve heard from several Fed presidents over the past few weeks, and the tide toward hawkishness does appear to be turning,” Mark Vickery, of Zacks Investment Research, said in an investors’ note.
“But raising rates in the current environment — with monetary easing and bond yields elsewhere on the globe lagging in negative territory, to say nothing of domestic inflation pressures which are minor — might appear to be shutting down the party early”, he added.
Germany’s Bundesbank chief on Monday said that the European Central Bank must not allow low interest rates and monetary stimulus to last indefinitely,
“Under no circumstances can interest rates remain so low for longer than is absolutely necessary with regard to price stability,” German central bank president Jens Weidmann told a group of European newspapers.
The ECB’s low rates combined with stimulus measures are supposed to drive down the cost of borrowing for businesses and households, and in turn stimulate growth.
But growth remains sluggish in the eurozone and the banking sector complains that low interest rates cut into profits.
In mid afternoon trading, London’s benchmark FTSE 100 index was 1.4 percent higher compared with the close on Friday.
In the eurozone, Frankfurt’s DAX 30 increased 0.8 percent and the Paris CAC rose 1.2 percent.
Keen for guidance
Rebecca O’Keeffe, head of investment at stockbroker Interactive Investor, said after a “torrid” last week, investors would be pleased with the rebound.
“With the expectation of no action in the US until at least December, the major market moving news is likely to be from (BoJ) Governor Haruhiko Kuroda, with investors hoping for significant intervention and forward guidance, including a further cut to rates,” she said.
Tokyo markets were shut Monday for a public holiday in Japan.
Elsewhere across Asia, Hong Kong ended 0.9 percent higher as investors returned from a three-day weekend to play catch-up with Friday’s regional rally.
Shanghai, which was closed Thursday and Friday, rose 0.8 percent and Singapore added 0.3 percent.
Sydney closed marginally lower at the end of a day interrupted by technical glitches.
“There are growing concerns about the limits of monetary policy’s impact on growth,” Bernard Aw, a markets strategist in Singapore at IG Ltd, wrote in a client note.
Markets ruled out the possibility of a US rate hike this week following data last week that revealed lacklustre US retail sales in August and tepid wholesale inflation, hurting the dollar in the process.
On Monday, the greenback was lower against the euro, yen and pound.