World stocks march back to record highs as ECB, BOE await decision

276
4
World stocks march back to record highs as ECB, BOE await decision

At their meetings Traders wait to see what ECB and BOE do.

LONDON, December 16, Reuters World stocks marched back to record highs on Thursday as traders waited to see if Europe's top central banks, the ECB and Bank of England, would match the U.S. Federal Reserve's upbeat message and cut monetary policy.

The record low plunged 3% ahead of its own central bank meeting, and Omicron numbers were rocketing globally, but for once it wasn't infecting the major markets, there was more drama in Turkey.

The pan-European STOXX 600 index jumped 1.4% early on, led by the tech and energy sectors. Wall Street futures were also pointing up again, while the bond and currency markets seemed happy with the Fed's taper plan to end its pandemic-era bond purchases by March.

If the Fed moves increases interest rates next year, it will be okay as long as there is growth, said Barrow Hanley's head of international equity Rand Wrighton, who said that the U.S. rates could go up three times before the end of 2022.

He said that while the rapid spread of the Omicron COVID 19 variant might delay the timing of economic recoveries, it shouldn't affect the broader trajectory.

The Fed has laid out a scenario in which the pandemic gives way to a benign set of economic conditions, with inflation easing largely on its own, interest rates increasing slowly and unemployment staying low, despite the Omicron variant.

The economy doesn't need increasing amounts of policy support, according to Jerome Powell, Chair of the Fed.

The ECB and BOE are trying to balance the need to support economies threatened by the virus with the need to cut money printing to cool rising inflation.

The ECB's 1245 GMT policy statement is expected to see it dial back its stimulus one more notch. It is expected to pledge ongoing support, sticking to its long-held belief that inflation will abate on its own.

Markets have risen their bets that the BoE may raise rates after it announced its decision at 1200 GMT on Wednesday. British consumer price inflation is at a more than 10 year high after another strong surge.

The BoE needs to get along with it and normalise policy after having bottled it at the last meeting, and the consensus is that the BoE will hold fire and wait until the fallout from the Omicron variant, Tapas Strickland, a director of economics at National Australia BankAustralia Bank, wrote in a note to clients.

The pound was up 0.2% to just under $1.33, having peaked for the year back in May at $1.4250. The euro went up a similar amount to just over $1.13, even though forward-looking euro zone purchasing manager data came in weaker than expected.

Europe is facing a fourth wave of infections and many governments are encouraging citizens to stay at home and avoid unnecessary social contact.

IHS Markit's Flash Composite Purchasing Managers' Index, a good indicator of overall economic health, dropped to 53.4 in December from 55.4 in November, its lowest since March and below the 54.0 predicted in a Reuters poll.

The PMI, which sank to an eight month low of 53.3 from 55.9, dragged down that headline number. While above the 50 mark separating growth from contraction, it missed the Reuters poll estimate for 54.1.

The euro zone economy is being dealt another blow from COVID 19 with rising infection levels dampening growth in the service sector, which could result in a disappointing end to 2021, said Chris Williamson, chief business economist at IHS Markit.

The lira dropped to an all-time low above 15 against the dollar ahead of a new interest rate cut by the central bank, which has fallen in line with President Tayyip Erdogan's risky new economic programme.

In September we exited local markets - we went to zero," said Jeffery Grills, head of emerging market debt at Aegon Asset Management, blaming the direction in which the country's economic and monetary policies were now taking.

The lira has halved its value this year.

Things were much smoother in the commodity markets. After falling on Wednesday, the oil rose to $75 as a result of record U.S. implied demand and falling crude stockpiles, while cooper, which is sensitive to the health of the global economy, rebounded 2.2% after falling below 11%.