Markets enjoy bet that interest-rate hikes are ‘yesterday’s story’

London — The bulls remained in charge on Thursday as bets that major central banks are now done with rate hikes and the recent slide in oil prices kept global borrowing costs near their lowest levels in months.

It was a slow start in Europe, with share markets nudging up within recent ranges, oil prices attempting a rebound, but the dollar, euro and yen all barely budging.

Government bonds were shifting only fractionally too, with the head of the US Federal Reserve due to speak again later and China having reported another dip in its inflation rate.

Germany’s benchmark 10-year borrowing cost was four basis points (bps) up from a two-month low of 2.6% hit on Wednesday with the equivalent US treasury note in a similar position at just above 4.53%.

“I think inflation is yesterday’s story,” said Pictet Asset Management’s chief strategist, Luca Paolini, explaining the “big question” now was whether there would be a sharp deceleration in the US economy in the coming months.

“We are bullish on bonds,” he added. “We think this is the beginning of a long and positive move.”

Overnight in Asia, Japan’s Nikkei raced up 1.5% as bumper earnings from Super Mario maker Nintendo, calculator and watch firm Casio, and broad-based gains in the oil sector wiped out two days of losses.

China’s property sector woes boomeranged back, though, with the main Hong Kong listed real estate index down 4% as embattled property giant Country Garden plunged nearly 10% as hopes of a rescue took a blow.

Chinese inflation figures for October also showed a 0.1% decline compared to September and a 0.2% year-on-year fall, pointing to still fragile demand.

“I think for equities investors, they are still shying away from Chinese property because there are so many unknowns,” said Jason Lui, BNP Paribas’s Head of APAC Equity & Derivative Strategy.

“Property needs to stop being a drag on GDP and sentiment so investors can move on to the real growth drivers.”

Cynical

Wall Street futures for the S&P 500 were flat after eight days of uninterrupted gains from the flagship index which is on its best run in almost exactly two years.

The dollar was almost stationary at ¥151.04 and $1.0695 to the euro. The dollar index, which tracks the greenback against a basket of currencies of major trading partners, was pretty lifeless too at 105.57, having risen about 2.5% since early October.

The dollar has rebounded from last week’s sharp sell-off on rising confidence the Fed has ended raising rates. There is less agreement on whether a rate cut is on the horizon with inflation still above its 2% target.

The Fed last week kept the benchmark overnight interest rate in the current 5.25%-5.50% range and the central bank is due to meet again mid next month.

The US weekly jobless claims published on Thursday will be closely watched as an indicator of the how the country’s labour market is performing. Economists predict claims will reach 219,000 after coming in at 217,000 last week.

In commodity markets, oil prices were back up nearly 1%, having slid more than 2% on Wednesday to their lowest in more than three months on concerns over waning demand in the US and China.

In European trading, US crude ticked up to $75.9 a barrel as Brent crude rose to just above $80 per barrel again.

Safe-haven gold was slightly lower at $1948.9332/oz, having seen a 10% spike after October’s outbreak of war between Hamas and Israel.

“We tend to forget one month ago everyone was panicking about the news coming from the Middle East but look at where the oil price is now,” Pictet’s Paolini said. “The markets are cynical.”

Reuters