The relentless risk levitation continued overnight, as global shares extended their stretch of consecutive record highs on Thursday for a 10th day after a cautious BOJ lifted Asian stocks to a decade high with a dovish announcement that offered no surprises, while pushing back Kuroda’s 2% inflation target to 2020, the 6th consecutive delay. With all eyes on the ECB in just over an hour, US equity futures are in the green, following solid gains around the globe. European stocks extended their biggest gain in a week while Asian equities maintained their rally. Microsoft, Blackstone, Philip Morris and Ebay are among companies reporting earnings. Initial jobless claims data due.
Traders – so mostly algos – are riding a global risk “high” in stocks as Asia’s and then Europe’s early 0.4 percent gains ensured MSCI’s 47-country All World index was up for a 10th straight session. This is the longest winning streak in global stocks since February 2015 and shows little sign of fatigue even as bond yields edged modestly higher again. The Stoxx Europe 600 Index rose 0.3 percent as of 9:53 a.m. in London.The U.K.’s FTSE 100 Index rose 0.5 percent to near the highest in a month. The MSCI Emerging Market Index fell 0.1 percent, the first retreat in almost two weeks. The VIX index closed below 10 for a record fifth consecutive day. Appropriately, Bloomberg dubbed the move a “no-vol” nirvana, in which stocks and bonds keep rallying as volatility evaporates.
The overnight focus was on the Japanese central bank’s decision to push back its ambitious inflation target again, sending the yean weaker to 112.4 per dollar. Attention now shifts to whether ECB head Mario Draghi will give a hint later that it plans to wind down its 60 billion-euro-a-month stimulus program. As previewed earlier, the most likely outcome is that Draghi will follow in Kuroda’s footsteps and not rock the boat. The risk, if any, is that Draghi does not come out sounding hawkish enough, which could prompt a big drop in the Euro which has been soaring in recent weeks on expectations the ECB will begin tightening policy soon.
“They are going to try and not upset markets,” said Nick Gartside, international Chief Investment Officer of fixed income at JP Morgan Asset Management. “I think the real action is going to be the September meeting. That is when we probably get a little bit of news on tapering.”
A cheat sheet of what to expect from the ECB is below.
The euro is up almost 10% so far this year but and was a shade lower at $1.1507 ahead of Draghi’s post-meeting news conference, having hit a 14-month high of $1.1583 on Tuesday.
“It may be as we approach “1.20, which is realistic let’s be honest, that it generates a little more alarm for the ECB,” Gartside added.
European bourses followed markets from Tokyo to Sydney higher, and the MSCI All-Country World Index traded at a record high. With the Bank of Japan delaying the time-frame for reaching its inflation target — a sign its stimulus is in place for a while to come, attention turns to the European Central Bank’s meeting for clues on policy paths. Oil held onto gains as stockpiles decreased. The U.S. dollar strengthened for a second day after hitting a 10-month low Tuesday, though it was still down for the week.
After the BOJ failed to inspire any volatility, traders are now left with Mario Draghi who speaks at 8:30am ET. Like the BOJ, the ECB is forecast to keep policy on hold Thursday. A report that the bank has been examining options for asset purchases does add to speculation that Mario Draghi will concede time is approaching to adjust the bond-buying program as the economic recovery expands.
In global macro, the Yen was weaker after the BOJ failed to deliver even a trace of hawkishness, sending the Nikkei 0.6% higher. The Aussie dollar slipped on profit taking after initially nearing 80 cents on solid jobs data; The Yuan weakened against the dollar for a second day after the PBOC added a net 60 billion yuan in repos on top of reported liquidity injection via banks on Wednesday. Dalian iron ore futures flat.
Elsewhere in currencies, the euro fell 0.1 percent to $1.1506, still close to a 14 month high. The British pound fell 0.1 percent to $1.3005, the weakest in a week. The Bloomberg Dollar Spot Index climbed 0.3 percent, the biggest increase in more than two weeks. The Japanese yen sank 0.3 percent to 112.34 per dollar, the largest decrease in almost two weeks.
In commodities, gold sank 0.3 percent to $1,238.03 an ounce, the largest decrease in almost two weeks. WTI crude fell less than 0.05% to $47.11 a barrel. The Bloomberg Commodity Index decreased 0.1%, the largest fall in a week.
In rates, the yield on 10-year Treasuries fell less than one basis point to 2.27 percent. Germany’s 10-year yield rose one basis point to 0.55 percent, the first advance in a week. Britain’s 10-year yield rose two basis points to 1.212 percent. Southern European government bonds underperformed better-rated peers having closed the gap with Germany to the tightest level in months in recent days. Italian, Portuguese and Spanish government bonds are seen as the biggest beneficiaries of the central bank’s ultra-loose monetary policy stance of the past few years, and some worry that the market is not fully reflecting the increased risk these countries now face if the ECB moves towards tighter policy. “We have seen very little impact on peripheral spreads since Sintra but this could change very rapidly in a short period of time if the messaging is a bit too hawkish today,” said DZ Bank strategist Daniel Lenz.
