European stocks mostly ticked up yesterday, geed by the lingering effect of the US Federal Reserve’s pull-back on rate hike plans and firmer oil prices, analysts said, but Tokyo was held back by a surging yen and London by profit-taking.
London’s FTSE 100 closed down 0.2% at 6,189.64 points, Frankfurt’s DAX 30 was up 0.6% at 9,950.80 points, Paris’ CAC 40 was up 0.4% at 4,462.51 points, while the EURO STOXX 50 was up 0.6% at 3,061.22 points, at close yesterday.
The Fed’s decision mid-week to peg back its forecasts on hiking rates — citing global turmoil and weak growth — has been greeted with relief across most trading floors. It came in a bumper week for central bankers — a day earlier the Bank of Japan kept its negative interest rate unchanged, while the European Central Bank launched a volley of stimulus and anti-deflationary measures on March 10.
Mark Vickery, of Zacks Investment Research, said the week had “been an island of market strength in a so-far volatile start to the first 12 weeks of the year”.
Yesterday, investors were also digesting remarks published in an Italian newspaper by the ECB’s chief economist that the Frankfurt-based bank could further slash its super-low interest rates if the economic outlook worsened.
“We have not reached the physical lower bound” on rates, Peter Praet told La Republicca daily.
London was Europe’s stand alone, closing 0.2% lower. But shares in Frankfurt and Paris both ended trade with convincing gains.
US stocks rallied into a third day yesterday, and were just over half a% higher at around 1700 GMT.
The Fed’s announcement on Wednesday has also provided a boost for emerging market currencies and sent the dollar tumbling, which in turn provided a boost to dollar-priced crude oil, which has surged above $40 per barrel.
“US stocks are ticking higher, along with European equities, despite a disappointing consumer sentiment report, amid the continued rally in crude oil prices and following this week’s Fed decision to cut this year’s rate hike forecasts,” analysts Charles Schwab said in an investors’ note.
The prospect of ultra-low interest rates buoys stock markets because it boosts spending in the world’s biggest economy, dealers said.
“Lowered interest rate expectations have sent global stock markets higher because low interest rates traditionally encourage spending, the rising tide lifting all boats,” said Spreadex analyst Connor Campbell.
Meanwhile, the strength of the yen has rattled Japanese central bankers who in January announced a shock decision to take interest rates into negative territory as they struggle to kickstart inflation and economic growth.