© Reuters. FILE PHOTO: A Digital Tablet Displays Stock Market Information in a Brokerage Office in Beijing
By Tom Wilson
LONDON (Reuters) – World stock markets rose Thursday after the US Federal Reserve signaled that they are likely to lower interest rates next month and yields on dollar and benchmark bonds fell to multi-year lows.
The Fed proposed on Wednesday that interest rate cuts could start next month, and agreed to take action in response to growing economic risks, 0.4% to the outlook for further impetus heading towards a third day of growth , The Euro gained 0.66% at the start of trading and Wall Street Futures indicated that US equities would open higher.
In Asia, the broadest MSCI index for Asian Pacific equities outside Japan rose 1
The Fed's interest rate signal came before meetings at major central banks in Asia and Europe, which were expected to make similar moves. The European Central Bank and the Australian Central Bank had already signaled this week that further political incentives are needed.
"It will be a race to the bottom for global interest rates, a race to the bottom for FX," said Peter Chatwell, head of interest rates at Mizuho.
The Bank of Japan kept interest rates unchanged on Thursday, but stressed that global risks are on the increase, suggesting that monetary policy support should be stepped up.
However, as expected, the Norwegian Central Bank raised interest rates, leaving the Norwegian krone up 1.6% against the previous year and 1% against the euro.
The Bank of England should announce its political decision at 1100 GMT. It looked like it was sticking to his message that it was likely to raise interest rates. Elsewhere, oil prices rose 3% after Iran launched a US drone that the Revolutionary Guards said would fly across southern Iran, sparking fears of military confrontation between Tehran and Washington breaking out.
Elsewhere, there were geopolitical risks, although hopes of progress in trade talks between the US and China increased. The two largest economies in the world have imposed ever stricter tariffs on each other.
Chinese and US officials will conduct trade talks on instructions from their leaders, the Chinese Ministry of Commerce said Thursday. Beijing hoped Washington would create the necessary conditions for dialogue.
Christophe Barraud, chief economist at Market Securities in Paris, said the stock markets have largely avoided the effects of the trade war so far. He warned that they might suffer as economic indicators deteriorate in the second half of the year.
"Equities mainly benefit from simple monetary policy without too much damage to the economic front," he said. "That could change in H2 … metrics, and they're likely to weaken around the world due to the impact of ongoing tariffs."
BOND YIELDS DROP
The Fed's cautious tone lowered the 10-year US Treasury's return to 1,974%, its lowest level since November 2016, reaching 2.8% in January.
Also government bonds of other countries fell, some to almost to record lows. The yield on ten-year German government bonds, a benchmark for sovereign bonds in the Eurozone, fell 3 basis points to -0.316%, testing the record low of -0.327% this week. Ten-year Japanese government bond yields fell to a three-year low of -0.160%, down 2 basis points. The comparable Australian yield fell to a record low below 1.30%.
Futures rose $ 1.39 or 2.25% to $ 63.28 a barrel at 0815 GMT, reflecting tensions in the Middle East and signs of improving US demand.