A gauge of global equity markets rose to a new high on Friday as US consumer spending in July suggested a strong economic rebound lies ahead, while the Japanese yen surged on safe-haven buying after Prime Minister Shinzo Abe resigned for health reasons.
The dollar slid and gold rose almost 2%, reversing their directions from Thursday, when the US Federal Reserve laid out its new stance on inflation, which reinforced expectations of a prolonged low-interest-rate environment.
Longer-term yields climbed sharply on Thursday after Fed Chair Jerome Powell unveiled a new approach to monetary policy that puts more emphasis on fighting shortfalls in unemployment and less weight on concerns about higher inflation.
US consumer spending increased more than expected last month, raising expectations for a sharp rebound in growth in the third quarter, though momentum could ebb as the Covid-19 pandemic lingers and fiscal stimulus dries up.
The Commerce Department report also showed a rise in personal income after two straight monthly declines, while monthly inflation pushed higher.
Momentum is driving US equities higher, said Tim Ghriskey, chief investment strategist at Inverness Counsel in New York.
“A lot of this is momentum. It’s just fear of being left behind, fear of missing out,” Ghriskey said.
“Value has been outperforming growth, and you’re seeing that reverse today. When growth underperforms for a period of days, it tends to rebound very sharply. We’re seeing that in market preferences today.”
MSCI’s benchmark for global equity markets rose 0.4% to 585.55, after earlier setting a new intraday high, while stocks on Wall Street also rallied, with technology leading the way.
The Dow Jones Industrial Average rose 0.3%, the S&P 500 gained 0.30% and the tech-laden Nasdaq Composite added 0.62%.
In Europe, stocks slipped as investors dumped this year’s outperformers, including technology and healthcare stocks, and bid up banking shares after the Fed unveiled its new policy framework.
The broad pan-regional FTSEurofirst 300 index dropped 0.39% to 1,431.48.
In Japan, the benchmark Nikkei 225 share index closed down 1.4% while the yen, seen as a safe-haven currency to buy in times of uncertainty, strengthened 1.20% versus the greenback at 105.29 per dollar.
The yen was on course for its biggest one-day jump since March, when the coronavirus pandemic roiled global markets.
Published in The Express Tribune, August 29th, 2020.
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