World shares have edged higher and the bond market calmed after reassurances from US Federal Reserve chairman Jerome Powell that the Fed is not rushing to hike rates but European stocks struggled to gain momentum.
The market is still feelling the after-effects of the Fed’s surprise projection for rate hikes as soon as 2023 last week, which knocked stocks, boosted the dollar and prompted the US bond yield curve to flatten.
Powell sought to reassure investors on Tuesday, saying the central bank would watch a broad set of job market data to assess the economic recovery from COVID-19, rather than rush to raise rates on the basis of fear of inflation.
The MSCI world equity index, which tracks shares in 49 countries, was up 0.1 per cent on the day at 7.53am GMT (1753 AEST) on Wednesday, having recovered from the one-month low it hit in the aftermath of the Fed’s meeting.
But MSCI’s main European Index struggled to gain momentum, down 0.3 per cent. The pan-European STOXX 600 was 0.2 per cent lower on the day but was up about 1.6 per cent from the lows it hit on Monday.
“The market’s still digesting the Fed news,” said Mo Kazmi, portfolio manager and macro strategist at UBP.
“I think a lot of that move was exacerbated by stretched positioning and now what we’re seeing is perhaps reflation trades being put back on and the market normalising to some extent, realising that for now it’s just a subtle shift from the Fed.”
Powell’s comments helped the yield on benchmark 10-year US Treasuries lower and put the brakes on a rising US dollar.
The 10-year US Treasury yield was at 1.4767 per cent at 0801 GMT .
The US dollar slipped as European markets opened, but it remains near multi-month highs after the Fed’s change in tone cleared out a heap of short positions. The euro was steady against the greenback at $US1.19385.
Early PMI data showed that euro zone business growth accelerated at its fastest pace in 15 years in June as the easing of more lockdown measures and the unleashing of pent-up demand drove a boom in the bloc’s dominant services industry.
Germany’s benchmark Bund yield was steady at -0.168 per cent at 0812 GMT.
Oil prices rose after industry data showed US crude inventories fell more than expected.
Gold edged higher, recovering after it dropped to its lowest since late April after the Fed last week.
Elsewhere, bitcoin was up around five per cent on the day, above the $US34,000 mark. The cryptocurrency dropped to as low as $US28,600 on Tuesday – its lowest since January. Ether was trading about $US2,000.