World stocks rose and Japan’s yen tumbled on Wednesday, after the Bank of Japan poured cold water on monetary tightening expectations and economic and earnings data proved cheery for European markets.
Data showed UK inflation dropped to a three-month low of 10.5% in December, the latest sign that global inflationary pressures are abating. European shares climbed after a string of positive earnings updates.
Europe’s STOXX 600 index (.STOXX) rose to its highest level since April 2022, reported Reuters.
Three factors have propelled stock markets higher, Andreas Bruckner, european equity strategist at BofA Global Research, said.
These were an expectation for a dovish pivot from the U.S. Federal Reserve, economic data that showed companies working overtime to deal with order backlogs, and China’s economy re-opening faster than expected from Covid-19 lockdowns.
“But the sugar high that markets are on will eventually disappear because it will be impossible to mask an underlying weakness in economic demand,” said Bruckner.
London’s FTSE 100 scaled a fresh 4-1/2-year high after the latest UK inflation numbers, although worries over tight monetary policy remained as the rate hovered in double-digit territory.
The internationally focused FTSE 100 <.FTSE> edged 0.1% higher. The pan-European STOXX 600 (.STOXX) was 0.2% higher, boosted by rate-sensitive technology stocks, while U.S. stock futures were mixed. MSCI’s broadest index of Asia-Pacific shares outside of Japan (.MIAPJ0000PUS) rose 0.4%.
The market spotlight was also on Japan, where the yen slid and government bond yields fell the most in two decades at one point, retreating sharply from the central bank’s 0.5% ceiling after policymakers decided to keep yield curve controls in place.
The 10-year yield plunged as much as 14 basis points to 0.36% at its lowest point, which would have been the biggest one-day decline since September 2003, before edging back up to 0.43% as of 1024 GMT. The yield was at 0.51% prior to the Bank of Japan decision.
In a Reuters poll, 97% of economists expected the BOJ to maintain its ultra-easy policy at the meeting.
“It was a tough day for the bond vigilantes who were positioned to bully the BOJ into a policy change not justified by their economic forecasts,” said Sean Callow, a senior currency strategist at Westpac. The dollar was up 1% at 12.953 yen but well off session highs .
The dollar index , which measures the safe-haven dollar against six peers, rose 0.4%. It has been undermined lately by falling U.S. bond yields as markets wager the Federal Reserve can be less aggressive in hiking rates.
The pound rose over 0.4% and the euro gained 0.6%.