News Column

Stocks near all-time high

June 10, 2014

Record low interest rates, improving economies lend support

World shares were within touching distance of an all-time high on Monday, spurred on by the potent combination of record low global interest rates and the improving health of major economies.

European markets were on the front foot again, looking for their 10th straight week of gains after last week's bumper set of easing measures from the European Central Bank.

Asian stocks earlier touched their highest levels in nearly three years, while Wall Street was expected to start steadily, having notched another record close on Friday following bright US jobs data.

MSCI's All-World share index, which encompasses 45 countries and is generally seen as benchmark of global stocks, was up 0.1 per cent at 426.77 points, just below its 2007 pre-financial crisis peak of 428.63 points. It has now risen almost 150 per cent since the 2009 lows of the crisis but with central banks like the ECB still hosing markets with cheap money, Peter Sullivan, HSBC's head of equity strategy in Europe, said the rally was likely to continue.

"We might be sitting close to all-time highs but valuations are not stretched," Sullivan said. "We got more confirmation last week (from the ECB) that policy is going to remain very loose for a long time."

Trading was thinner than usual due to public holidays in a handful of countries including Germany and France, but the strong appetite for risk in the region was hard to miss.

Spanish and Italian bond yields , a proxy for what their governments pay to borrow on financial markets, were at all-time lows with Spain enjoying lower yields than the United States.

Emerging markets were also performing strongly with stocks on the cusp of a one-year high and a number of key currencies on the rise. The South Korean won touched a near six-year peak, while Malaysia's ringgit hit a near seven-month high.

Among major currencies, the dollar continued to benefit from rising US Treasury yields, after US jobs data on Friday showed employment back at its pre-recession level. The euro drifted down to $1.3615 as the dust settled after last week's ECB frenzy of activity, though there was plenty of daylight between it and its $1.3502 low.

Weekend trade data from China also supported the view of a recovering global economy, with exports gaining steam last month. But the same figures also contained some cause for concern, as a surprising drop in imports could herald weaker domestic demand.

China's yuan rose after the People's Bank of China unexpectedly fixed its daily midpoint higher against the dollar for the second straight session, which in turn also gave a lift to other Asian currencies. The yield on benchmark 10-year Treasuries shuffled up to 2.6131 per cent, climbing from Friday's US close of 2.597 per cent and well above 11-month lows plumbed last month.

US crude and Brent oil gained 0.3 and 0.2 per cent to $103.02 and $108.83 a barrel respectively, underpinned by the solid jobs report that in theory should translate to higher oil demand.

Spot gold was steady near a four-month low at $1,255 an ounce, while Shanghai copper fell to its lowest in nearly a month and London copper also dropped, unsettled by concerns that a probe into metals storage at China's third-largest port could squeeze financing and buying in metals.

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Source: Khaleej Times (United Arab Emirates)

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