Global stocks follow Wall Street higher after Fed pledge

BEIJING (AP) — Global stock markets followed Wall Street higher yesterday after the Federal Reserve chairman said the United States (US) central bank is in no hurry to withdraw support for the economy.

London and Frankfurt rose in early trading. Shanghai, Tokyo, Hong Kong and Seoul closed higher. US futures were mixed.

Overnight, Wall Street hit a new high after chairman Jerome Powell said the Fed sees no sign inflation might rise out of control. That helped to dampen fears sparked by a rise in US Treasury bond yields, an indicator of inflation sentiment, that rising price pressure might lead the Fed to raise interest rates.

“Powell has again been pouring oil on troubled markets,” said Robert Carnell of ING in a report. “But the Fed still has communication issues over its future policies which could emerge as a tantrum some way down the line.”

In early trading, the FTSE 100 in London rose 0.3 per cent to 6,680.06 and Frankfurt’s DAX added less than 0.1 per cent to 13,985.53. The CAC 40 in Paris advanced 0.4 per cent to 5,819.27.

On Wall Street, the future for the benchmark S&P 500 index was off less than 0.1 per cent while that for the Dow Jones Industrial Average rose 0.2 per cent.

On Wednesday, the S&P 500 added 1.1 per cent. The Dow climbed 1.4 per cent and Nasdaq Composite picked up one per cent.

A school group walks by the New York Stock Exchange. PHOTO: AP

In Asia, the Shanghai Composite Index rose 0.6 per cent to 3,585.04 and the Nikkei 225 in Tokyo gained 1.7 per cent to 30,168.27.

The Hang Seng in Hong Kong advanced 1.2 per cent to 30,074.17 after the territory’s government promised more coronavirus aid and forecast economic growth of at least 3.5 per cent this year.

The Kospi in Seoul added 3.5 per cent to 3,099.69 after the Bank of Korea left interest rates unchanged and forecast three per cent annual economic growth.

Sydney’s S&P-ASX 200 was 0.8 per cent higher at 6,834.00 and India’s Sensex gained 0.8 per cent to 51,181.85. New Zealand retreated while Southeast Asian markets advanced.

Global stock prices have soared over the past six months on hopes for a coronavirus vaccine and central bank promises of abundant credit to support struggling economies. Those sentiments have faltered due to warnings the rally might be too early and that inflation might rise, prompting central banks to pull back.

On Wednesday, Powell affirmed the Fed’s policy commitment in a second day of testimony to legislators in Washington.

The central bank earlier indicated it would let the economy “run hot” to make sure a recovery is well-established following the deepest slump since the 1930s. Powell said it might take more than three years to hit the Fed’s target of two-per-cent inflation.

Yesterday, the yield on the 10-year US Treasury note, or the difference between the market price and what a buyer would be paid when it matures, widened to 1.42 per cent, the highest in just over a year. That indicated investors were moving money out of bonds, a sign they expect inflation to rise, which would reduce the value of the payout.

Powell told the House Financial Services Committee the Fed was in no hurry to raise interest rates or trim its USD120 billion in monthly bond purchases, which pushes down interest rates by making more money available for lending.

In Asia, governments aside from China “should more or less follow the Fed in a patient ‘wait-and-see’ mode in the near future”, said Alex Wolf of JP Morgan Private Bank in a report this week. “This could be a further tailwind to growth this year.”

Investors also are looking for Congress to approve US President Joe Biden’s proposed economic aid plan. That includes USD1,400 checks to most Americans. However, the plan faces staunch opposition from Republicans and is still subject to negotiations.