LONDON: World stock markets ground their way higher on Monday after a frenetic round of activity at central banks in Asia and Europe showed they are willing to do more to support economic growth and higher inflation.
European shares, which had their best day in a month on Friday after the People’s Bank of China cut interest rates, edged higher still on Monday after sources told Reuters at the weekend Beijing was ready to ease policy further to head off slowing inflation.
European Central Bank chief Mario Draghi also looked to be clearing the way for the full-scale government bond buying widely hoped for by financial market investors but opposed by Germany’s Bundesbank.
Germany’s influential Ifo survey gave a more upbeat vision of business sentiment than some other data in the past month, boding better for growth but potentially complicating the policy picture.
Jean-Louis Cussac, the head of Paris-based firm Perceval Finance, said the market was currently driven by central banks.
“Fund managers have not been selling equities during the recent pullbacks because of the ‘ECB put’: if the situation worsens, the central bank is ready to take further steps,” he said. “The market remains volatile, and investors should be cautious.” Shares in Shanghai hit three-year highs as the prospect of further policy stimulus in China and Europe whetted risk appetite globally. The euro steadied after nearing 28-month lows.
The Shanghai Composite Index rose almost 2 per cent more on Monday, while MSCI’s broadest index of Asia-Pacific shares outside Japan jumped 1.1 per cent. Tokyo was closed for a holiday.
“China’s rate cut adds to the determination of global policymakers to avoid deflation and support growth,” said Shane Oliver, head of investment strategy at fund manager AMP Capital in Sydney.
“While US quantitative easing may have ended, it’s being replaced by QE in Japan and Europe and rate cuts in China,” he added. “This in turn augurs well for shares and other growth assets.” A handful of appearances by some of Draghi’s colleagues may offer more clarity on whether the ECB is in danger of delivering stronger action.
The main measure of European bluechips gained 0.4 per cent in early trading, prodded higher by a rebound in Ifo’s indicator of business sentiment after six successive declines.
In commodity markets, oil edged down ahead of a key meeting of Opec on Thursday amid uncertainty on whether producers would agree on a meaningful cut in output to support prices. Brent fell 13 cents at $80.24 a barrel, while US crude rose 9 cents to $76.42.
Gold was steady around $1,200 an ounce, as traders cheered the prospect of more global stimulus.
