Nikkei and European markets rise

Central bankers cautious on growth and interest rate rises

Japan's Nikkei jumped to a near two-year high on Tuesday and European stock markets built on their biggest one-day gain in two months as central bankers gave a tempered message about growth and the chances of rises in interest rates.

Bank of England governor Mark Carney, fresh from a meeting which saw three colleagues on the bank's policy committee vote for higher rates, knocked half a per cent off Britain's pound by saying "now was not the time" to adjust borrowing costs.

Similarly, in a speech late on Monday, Chicago Federal Reserve president Charles Evans said it may be worthwhile for the US central bank to wait until year-end to decide whether to raise rates again.

After jitters on high-tech stocks this month, that leaves markets confident that major central banks will not be tightening the flow of cash which has kept markets rising for eight years, at a time when growth globally looks solid.


Quantitative easing

“Companies are in aggregate in robust health, and with all the cash from quantitative easing still washing around the system, there is a lack of alternatives for investors to put their money in,” said Andy Sullivan a portfolio manager with GL Asset Management UK in London.

“Low rates – and the negative return on cash that they continue to generate – just sustain that dynamic.”

The Nikkei closed 0.8 per cent higher on the day, having earlier gained more than 1 per cent.

European markets gained between a quarter and half a per cent in early trading.

The technology sector which has led US stock market gains this year, fell for a second week last week but they saw a strong rebound on Monday that helped push Wall Street indexes to record highs.

"High-tech shares just went through a correction," said Mutsumi Kagawa, chief global strategist at Rakuten Securities.

“Valuation is not that expensive, standing far below their levels at the peak of the dotcom bubble . . . Given that their profits are expected to see exponential growth in coming years, it is premature to say the rally in high-tech shares is over.”

The votes for higher rates at the Bank of England’s meeting last week propped up the pound after an almost 3 cent fall on the back of surprise election results two weeks ago.

But Carney played down the chances of any swift move at a time when the hard data on the UK economy has been worsening.

The pound hit a one-week low of $1.2671 after his comments on rates. – (Reuters)