Global stock markets rallied yesterday, buoyed by a boost in oil prices, as traders looked to upcoming US and Japanese central bankers’ talks for hints of future action.
Concern that years of cheap cash could be coming to an end has roiled markets this month.
Conflicting comments from top US Federal Reserve officials over the need for an interest rate hike have fuelled the uncertainty.
“We’ve heard from several Fed presidents over the past few weeks, and the tide towards hawkishness does appear to be turning,” Mark Vickery, of Zacks Investment Research, said in an analysts’ 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.
Additionally, a lack of concrete promises 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.
Germany’s Bundesbank chief yesterday 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.
London’s benchmark FTSE 100 index closed sharply higher, up 1.5% at 6,813.55 compared with the close on Friday.
In the eurozone, Frankfurt’s DAX 30 jumped 0.95% at 10,373.87 and the Paris CAC also regained some of last week’s losses, closing 1.4% higher at 4,394.19.
Mikael Jacoby, at Oddo Securities in Paris, said Monday’s rebound was “mostly technical” and a reaction to price falls last week, themselves a result of profit-taking.
Shares in French gas group Engie rose 1.25% to 13.75 euros despite the EU launching a probe into alleged sweetheart tax deals between Engie and Luxembourg.