Global markets strong due to ECB quantitative easing and GE plans

Global stock markets ended the week with the S&P 500 back within striking distance of its record high, European equities at 15-year peaks and the Nikkei 225 in Tokyo briefly climbing back above 20,000 for the first time since 2000.

Investors have poured record amounts of money into euro-zone equities over recent months, emboldened by the prospect of an economic recovery as the European Central Bank’s €1.1 trillion quantitative easing policy suppresses borrowing costs and cheapens the single currency.

With the ECB's €60 billion of monthly bond purchases starting only last month, investors are mindful that the euro-zone equity rally has further room to run, given the stellar performance of US shares in recent years when the Federal Reserve was the largest buyer of government debt.

Wall Street's latest push higher came as General Electric unveiled plans to sell the bulk of its finance arm and return up to $90 billion (€85bn) to shareholders through stock buybacks and dividend increases over the next three years.

By midday in New York, the S&P 500 equity index was up 0.5 per cent at 2,100, leaving it about 0.8 per cent below last month’s record close and putting it on track for a weekly gain of 1.6 per cent. GE shares were up 8 per cent.

The news from GE helped equity bulls shrug aside worries about first-quarter corporate earnings and the renewed appreciation of the dollar. Energy stocks got a lift from a 1.8 per cent rise for Brent crude oil to $57.58 a barrel – leaving it nearly 5 per cent up over the week.

On this side of the Atlantic, the FTSEurofirst 300 index rose 0.9 per cent to its highest finish since October 2000 – up 3.7 per cent over the holiday-shortened week – while the Xetra Dax in Frankfurt and London’s FTSE 100 both ended at record peaks.

In Japan, the Nikkei touched 20,006 before turning tail and finishing 0.2 per cent lower at 19,907, although it rose 2.4 per cent over the five-day period. Hong Kong stocks made notable gains this week, with the Hang Seng’s 1.2 per cent gain on Friday giving a three-day advance of 7.9 per cent.

US market participants appear to have taken the view that last week’s unexpectedly soft employment report for March – which showed the first sub-200,000 monthly rise in non-farm payrolls in a year – was not the beginning of a trend.

The dollar, which fell sharply in the wake of the jobs data, was up 0.2 per cent against a basket of currencies on Friday, giving it a five-day rise of 2.9 per cent and putting it back in sight of a recent 12-year high. The euro was down 0.6 per cent on the day at $1.0596, after touching $1.10 a week ago.

There was a view in some quarters that the weak US jobs number might have been due to companies struggling to hire the right people after more than four years of solid employment growth and declining unemployment rates.

“If that is so, we should start to see more evidence of wage growth picking up in the months ahead,” said Chris Iggo at Axa Investment Managers.

“It would be ironic if a weaker data point on employment growth was a signal that the economy was close to full employment and that interest rate hikes should start soon.”

The US government bond market moved to price in the prospect of higher US rates. The yield on the 10-year Treasury, although down 2 basis points at 1.94 per cent on Friday, was up 10 basis points over the week. The two-year yield, steady on the day at 0.54 per cent, was 6bp higher than a week earlier.

Meanwhile, the German 10-year Bund yield hit a record low of 0.14 per cent this week before pulling back to 0.16 per cent, flat on the day and 2 basis points down over the five-day period.

A quarter of euro-zone government bonds now trade with a negative yield, creating a powerful incentive for investors to own shares that pay a higher dividend. The declining value of the euro, which has fallen 12 per cent this year, also provides a boost for euro-zone companies that rely on foreign-based revenues, providing a notable tailwind for large multinationals such as Merck, BASF, Volkswagen, Adidas, Peugeot and Airbus.

Switzerland broke new ground this week by becoming the first nation to issue 10-year debt with a negative yield.

– Copyright The Financial Times Limited 2015