World stocks rise as Fed calms inflation jitters

Interest rates will not rise until policymakers see inflation above target for a long time or excessively high inflation, Fed officials say

Pedestrians walk past an electronic board displaying company stock prices on the Tokyo Stock Exchange in Tokyo. Photo: AFP

Global stocks rose and the dollar dipped on Friday after US Federal Reserve officials said there would be no imminent move to tighten monetary policy in the world’s biggest economy.

The bounce, extending a late recovery in the prior session, interrupted a three-day rout for stocks globally, amid market jitters over accelerating US inflation.

The MSCI World Index, a broad gauge of equity markets globally, was up 0.4 per cent in early European trading, adding to Thursday’s 0.4 per cent gains after a loss of more than 4 per cent since the start of the week.

The STOXX Europe 600 Index was up 0.3 per cent at 12.27am UAE time, giving back some of its early gains, while the FTSE 100, Europe’s biggest index, was up 0.6 per cent.

The gains followed overnight strength in Asia, where Tokyo’s Nikkei jumped 2.3 per cent, while MSCI’s broadest index of Asia-Pacific shares outside Japan gained 0.8 per cent and Chinese blue chips rose 2.4 per cent.

US stock futures pointed to a higher open on Wall Street, with S&P 500 futures up 0.5 per cent and its Nasdaq peer up 0.8 per cent.

After a higher-than-expected inflation print had spooked markets earlier in the week, Fed official Christopher Waller signalled overnight that rates would not rise until policymakers either see inflation above target for a long time or excessively high inflation.

“From 2004 to 2008, the Fed raised rates from 1 to 5.25 per cent. However, the massive public and private debt levels limit the Fed in how much interest rates can increase this time without too much damage to the overall economy,” Louise Dudley, global equities portfolio manager, at the international business of Federated Hermes, said.

With so-called “growth” stocks, those expected to post higher-than-average returns, trading on higher valuations than their more staid peers, Mr Dudley said now was the time to change tack.

The massive public and private debt levels limit the Fed in how much interest rates can increase this time without too much damage to the overall economy

“Stocks with more attractive valuations and slower growth will do well in a higher interest rate environment. Investors will do well focusing on valuation this year even if interest rates do not surprise on the upside.”

Looking ahead, traders will wait for the release of a fresh batch of US data including April retail sales, industrial production and capacity utilisation, while the Dallas Federal Reserve president is also set to speak.

In Europe, meanwhile, the European Central Bank is set to publish the accounts of its April meeting.

Benchmark 10-year Treasury yields were down fell by nearly 4 basis points overnight and eased further to trade at 1.6420 per cent.

After holding steady in Asia overnight, the US currency extended losses against a basket of its major peers, with the dollar index down 0.3 per cent at 90.46, taking a breather after recent strong gains.

“Treasury yields are higher this week, but only by 5bp, which is less of a rise than in Europe, and a pretty modest reaction to the CPI data,” Societe Generale analyst Kit Juckes said in a note.

“Either the US inflation uptick is temporary, or the Fed is dangerously complacent. Either way, we’re going to see tolerance of higher inflation tested further in the months ahead.”