Global shares cool as easing expectations fade

Stock markets cooled yesterday as euphoria about the prospect of further central bank policy easing faded, with investors warning against over-confidence ahead of another week of interest rate decisions.

Comments from a key economic adviser to Japanese prime minister Shinzo Abe, who said the Bank of Japan did not need to boost its monetary stimulus as early as this week, tempered expectations that Friday’s policy review will see new action.

The monthly Ifo survey of German business morale dipped in October but beat forecasts, suggesting Europe’s largest economy remains resilient in the face of a slowdown in emerging markets and the Volkswagen scandal.

Corporate expectations over a half-year horizon hit a seven-month high, suggesting many firms believe they can cope with the economic headwinds.

“We have had a pretty good rally in risk assets since the beginning of October,” said Sean Darby, a strategist at Jefferies.

“Clients have only really got two or three more weeks to do anything before year-end and they are not going to take big positions going into December.

“On Japan, people also may have read too much into the possible crossover from the ECB.”

Bets that Japan’s already massive stimulus would be increased had risen after China cut interest rates last week and the European Central Bank indicated it may add to its asset purchase programme in December.

The US Federal Reserve, which also meets this week, is also increasingly seen delaying its first rate increase for nearly a decade until next year.

Global equities, which have rebounded 10% from the depths of September’s sell-off, were broadly flat yesterday, with the pan-European FTSEurofirst 300 index down 0.2%. MSCI’s index of Asia-Pacific shares outside Japan edged up 0.2%.

US shares were also set to open lower, with futures down around 0.1%. Valeant Pharmaceuticals sank nearly 14% in pre-market trading after the company said it would set up a panel to probe allegations about its associations with specialty pharmacy distributor Philador.

The prospect of more central bank cash was seen supporting bond markets, with Italian and Spanish bond yields at nearly their lowest levels in half a year on expectations additional ECB stimulus will lift lower-rated euro zone bonds. German Bund yields hovered just above 0.50%.

Portuguese yields bucked the trend, rising after opposition Socialists pledged to topple the government in a no-confidence vote, with political instability seen as a potential setback in Lisbon’s path to recovery.

Crude oil prices edged higher but stayed range-bound on indications that global storage is nearing capacity. Iron ore futures in China and Singapore ticked lower amid pressure from a weak steel market, though copper prices edged higher.

Meanwhile, Britain’s top equity index slipped off two-month highs, weighed down by a fall in advertising group WPP, while TalkTalk’s losses worsened in the wake of a cyber attack on the company.

WPP declined by 2.3%, making it the top FTSE 100 faller.

The firm reported that its sales growth had accelerated in the third quarter, but some traders said the numbers were not strong enough to justify a further rally in its stock, which had risen nearly 10% over the last month.

The company also highlighted that clients were unwilling to take further risks, and wished to focus on cost-cutting rather than revenue growth when faced with an emerging market slowdown.


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