Traders work at their desks
in front of the German share price index, DAX board, at the stock exchange in
Frankfurt, Germany, June 30, 2016.
The prospect of further cuts
in interest rates and bond-buying to support a fractured global economy kept
stock markets on the up in Europe and Asia on Friday, and drove U.S. and
European government bond yields to their lowest in years.
Signs that the world's big
central banks will go even easier on monetary conditions, extending an era of
ultra-low interest rates, have been at the heart of a recovery for stock
markets from the chaos caused by Britain's vote to leave the European Union
last week.
But the big moves on Friday
were in the bond yields that represent the cost of borrowing for governments
and a benchmark for how much banks, companies and individuals pay for credit.
The 10-year U.S. Treasury
yield US10YT=RR fell to its lowest in four years, taking it within striking
distance of record lows. French and Dutch equivalents hit all-time lows and
those for others among Europe's struggling southern states were around their
lowest in a year.
The fall in peripheral
yields came largely thanks to a Bloomberg report that the European Central Bank
was considering looser rules for bond-buying that might include moving away
from a link between purchases and the size of a country's economy. The report
also helped European shares edge higher for a fourth day .FTEU3, although Wall
Street was set to open flat. 1YMc1
"The speculation that
the ECB might adjust its QE program is something that is being received
excitedly in bond markets," said Christian Lenk, a strategist at DZ Bank.
"It would mean that
issuers who have large outstanding debt like Italy would stand to
benefit."
Sources close to the ECB
told Reuters, however, that the ECB was not currently considering buying
government debt out of proportion to euro zone countries' shareholding in the
bank and that the hurdle for abandoning this capital key was high.
Earlier, MSCI's broadest
index of Asia-Pacific shares outside Japan .MIAPJ0000PUS cranked out its third
gain in four days, up around half a percent. Japan's Nikkei .N225 closed 0.7
percent higher.
"If these reports are
confirmed, this removes the risk of a post-referendum spike in (euro zone)
peripheral bond spreads – and, hence, the most immediate way in which the UK
referendum result could lead to near-term financial stress," Deutsche Bank
equity analysts said in a morning note.
Bank of England Governor
Mark Carney's signal on Thursday that more moves to support growth are likely
over the summer has also helped crystallize expectations for broadly easier
policy.
In the United States, that
should take the form of a retreat from any prospect of higher rates this year,
and possibly next. Europe and Japan are expected to have to do more but their
hands are tied by the extent of moves already made.
For stock markets in
particular there is also the growing question of whether any of this is likely
to work after several years in which it has failed to reboot the world's
biggest economies. The Brexit vote is just the latest blow to any recovery.
Shares in China, another big
source of concern, wobbled after official surveys on Friday showed growth in
the manufacturing sector stalled, although the main indices are up 2.5-3.0
percent this week.
Credit:Reuters/FT
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