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Friday 08:00 GMT. Major equity gauges are finishing a strong October on a positive note, shrugging off firmer Treasury yields, after a month dominated by monetary policy machinations.
The yen has been choppy so far on Friday after the Bank of Japan decided not to alter its stimulus package. Industrial commodities are mixed as the dollar index softens from two-month highs.
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The FTSE Eurofirst 300 is following a mostly upbeat Asian session — where Tokyo rose 0.8 per cent — with a 0.2 per cent gain at the open. US index futures suggest the S&P 500 will climb 7 points to 2,096, leaving the Wall Street benchmark just 35 points shy of its record high hit in May.
Stocks have had a good month. The S&P 500 is up 8.8 per cent, Japan’s Nikkei 225 has risen 9.8 per cent, Germany’s Dax has surged 12 per cent, and the Shanghai Composite has advanced 10.8 per cent.
Why such a bullish showing? First, the turn of the month coincided with the trough of the late summer sell-off. That dive was predicated on nervousness over China’s economy, pessimism about the approaching third-quarter corporate earnings season, and uncertainty over Federal Reserve policy, after the US central bank decided in September not to raise interest rates.
To varying degrees those concerns have abated, helping an oversold market rebound, propelled further by seasonally bullish tailwinds.
Company earnings have not been as bad as feared. By Thursday, of the 308 S&P 500 companies to have reported, 68 per cent had beaten forecasts, better than the historic average of 66 per cent, says Lindsey Bell, senior analyst at S&P Capital IQ.
And worries about global growth have been assuaged somewhat by central banks stepping up to the plate. The People’s Bank of China last week announced it would ease policy further, trimming banks’ reserve requirements and cutting borrowing costs to boost lending. The Shanghai Composite fell just 0.1 per cent on Friday.
The European Central Bank also this month guided the market to expect more stimulus measures, possibly by December. Those comments hit the euro — which is fairly steady on the day at $1.0991, but down 1.7 per cent in October — and boosted eurozone sovereign bonds.
The 10-year German Bund yield, which moves inversely to the price, is currently down 1 basis point at 0.53 per cent having started the month at 0.59 per cent.
Some investors had thought the Bank of Japan would also pledge further quantitative easing at its meeting on Friday. But, despite downgrading its growth and inflation forecasts, the BoJ stood pat, triggering a bout of volatility in the yen.
Against the dollar the Japanese unit rose as high as Y120.40 and as low as Y121.40, and is currently 0.3 per cent firmer at Y120.73. The Tokyo stock market took a positive stance, with the Nikkei 225 adding 0.8 per cent as 10-year bond yields hit 0.31 per cent, up 1bp from two-month lows.
In contrast, US 10-year Treasury yields are down 1bp to 2.16 per cent, but up 10bp over the month, after the Federal Reserve stressed this week that a rate rise in December remained on the table.
Investors appear sanguine about the prospect of official borrowing costs rising by the end of the year, because they reason it will remove uncertainty about the first such move in nearly a decade; it signals the Fed is happier about economic conditions; and it will be the first step in what anyway should be a very shallow rate hike trajectory.
However, there are pockets of the market that still display nervousness; notably commodities.
Concerns about oversupply amid soft China demand leaves Brent crude barely changed on the month at $48.48 per barrel, while weakness in mining stocks of late leave the resources-heavy FTSE 100 with a gain of about 5.5 per cent for October, half of the gains enjoyed by Germany’s Dax.
In a mixed base metals sector on Friday, copper is adding 0.4 per cent to $5,149 a tonne. Gold is up $2 to $1,148 an ounce.
