Fed balm lifts stocks to all-time high amid struggle against the yuan

Passers-by wearing face masks are reflected on a stock quote board outside a brokerage house, amid the coronavirus disease (COVID-19) outbreak, in Tokyo, Japan on November 10 2020. REUTERS / Issei Kato

European stocks hit record highs on Tuesday, appeased by assurances from Federal Reserve officials that monetary stimulus will not be recovered anytime soon.

Sentiment in Europe was also supported by the latest IFO indicator which showed that the recovery of the German economy, the largest in Europe, is gaining momentum after the COVID-19 hit.

A multibillion-euro acquisition transaction involving two of Germany’s largest real estate developers was the focus of attention. Vonovia (VNAn.DE) slipped 4% on news of the takeover of competing developer Deutsche Wohnen (DWNG.DE), whose shares jumped more than 15%, to around € 18 billion.

The STOXX index (.STOXX) of major European stocks gained 0.3% to 446.57 points after hitting a new high of 447.01.

The mood turned bullish again with less concern about whether the US Federal Reserve would start cutting its bond purchases, said Giles Coghlan, chief currency analyst at HYCM.

“US personal consumption data on Friday will be the first major test of whether the Fed will view inflation as transient,” Coghlan said.

“We have this constant cat and mouse game. At some point the reduction is going to happen.”

For now, James Bullard, chairman of the Federal Reserve of St. Louis, has put an end to his concerns.

“I think there will come a time when we can talk more about changing the parameters of monetary policy, I don’t think we should be doing that while we are still in the pandemic,” Bullard said on Monday. Read more

Other Fed officials Raphael Bostic and Lael Brainard also made soothing comments about inflation.

Insurance over inflation and Bitcoin’s stability after recent large losses helped push Wall Street’s VIX (.VIX) “fear gauge” below 20 on Monday, near its long-term average, Coghlan said.

U.S. equity futures, the S&P 500 e-minis, rose 0.3%, indicating a consistent open on Wall Street.


China’s major state-owned banks have been seen buying US dollars in an attempt to curb the yuan’s rapid appreciation.

In Asia, the region’s leading regional equity indicators soared with the largest MSCI Asia-Pacific equity index outside of Japan (.MIAPJ0000PUS) rising 1.5% to a two-week high.

“Markets were buoyant as the data flow fell short of the high inflation narrative, and amid repeated indications from senior central bank officials that the current rise in inflation is temporary,” ANZ analysts wrote in a note.

Australian stocks (.AXJO) rose 0.9% to a two-week high. Japan’s Nikkei stock index (.N225) jumped 0.6%, boosted by heavy local tech stocks, although gains were contained by fears of a slow economic recovery due to slow deployment vaccines in the country.

Chinese stocks in particular hit a 2.5-month high on financials and consumer gains. The blue-chip CSI300 (.CSI300) jumped 3%, while the Shanghai Composite Benchmark (.SSEC) rose 2.4%, reaching its highest levels since early March. Hong Kong’s Hang Seng Index (.HIS) rose 1.43%.

“As China’s economic recovery continues and commodity prices begin to stabilize, this would help allay inflation concerns and mend investor sentiment,” said Hong Hao, head of research at BoCom International.

On Monday, the Dow Jones Industrial Average (.DJI) rose 0.54% while the S&P 500 (.SPX) and Nasdaq Composite (.IXIC) gained 0.99% and 1.41% respectively.

Treasury yields, which fell on Monday after a few Fed officials affirmed their support for maintaining an accommodative monetary policy for a while, changed little. The benchmark 10-year Treasury yield was 1.5978%.

Digital currencies rebounded on Monday after last week’s crypto rout, regaining ground lost in a weekend selloff following news of China’s crackdown on mining and trading in cryptocurrencies. Read more

After losing 13% on Sunday, Bitcoin, the world’s largest cryptocurrency, last lost 0.3% to around $ 38,707.

The dollar index, which tracks the greenback against a basket of currencies from other major trading partners, edged down to 89.625. The single European currency was up 0.3% on the day to $ 1.2252, after gaining 1.72% in one month.

US crude fell 0.38% to $ 65.81 per barrel. Brent crude fell 0.3% to $ 68.27 a barrel.

Gold was slightly lower. Spot gold was trading at $ 1,880 an ounce.

Our Standards: Thomson Reuters Trust Principles.

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