Nikkei and European markets rise

Central bankers cautious on growth and interest rate rises

Japan’s Nikkei jumped to a near two-year high on Tuesday and European stock markets built on their biggest one-day gain in two months.
Japan’s Nikkei jumped to a near two-year high on Tuesday and European stock markets built on their biggest one-day gain in two months.

Japan's Nikkei jumped to a near two-year high on Tuesday and European stock markets built on their biggest one-day gain in two months as central bankers gave a tempered message about growth and the chances of rises in interest rates.

Bank of England governor Mark Carney, fresh from a meeting which saw three colleagues on the bank's policy committee vote for higher rates, knocked half a per cent off Britain's pound by saying "now was not the time" to adjust borrowing costs.

Similarly, in a speech late on Monday, Chicago Federal Reserve president Charles Evans said it may be worthwhile for the US central bank to wait until year-end to decide whether to raise rates again.

After jitters on high-tech stocks this month, that leaves markets confident that major central banks will not be tightening the flow of cash which has kept markets rising for eight years, at a time when growth globally looks solid.

READ MORE

Quantitative easing

“Companies are in aggregate in robust health, and with all the cash from quantitative easing still washing around the system, there is a lack of alternatives for investors to put their money in,” said Andy Sullivan a portfolio manager with GL Asset Management UK in London.

“Low rates – and the negative return on cash that they continue to generate – just sustain that dynamic.”

The Nikkei closed 0.8 per cent higher on the day, having earlier gained more than 1 per cent.

European markets gained between a quarter and half a per cent in early trading.

The technology sector which has led US stock market gains this year, fell for a second week last week but they saw a strong rebound on Monday that helped push Wall Street indexes to record highs.

"High-tech shares just went through a correction," said Mutsumi Kagawa, chief global strategist at Rakuten Securities.

“Valuation is not that expensive, standing far below their levels at the peak of the dotcom bubble . . . Given that their profits are expected to see exponential growth in coming years, it is premature to say the rally in high-tech shares is over.”

The votes for higher rates at the Bank of England’s meeting last week propped up the pound after an almost 3 cent fall on the back of surprise election results two weeks ago.

But Carney played down the chances of any swift move at a time when the hard data on the UK economy has been worsening.

The pound hit a one-week low of $1.2671 after his comments on rates. – (Reuters)