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Monday 21:15 BST. Wall Street managed to put aside an initial bout of nervousness over the quarterly earnings season and instead focused on the prospect of continued central bank liquidity, after the G20 waved through Japan’s attempts to stimulate its economy.
The endorsement of Japan’s aggressive quantitative easing policy initially put the yen back on the defensive, although the dollar subsequently faltered as it neared Y100, But strategists said a breach of that level now looked almost inevitable.
“The catalyst for a break higher this week could be confirmation from Japanese life insurers that they plan to increase foreign bond holdings in the new fiscal year,” said Chris Turner, head of foreign exchange strategy at ING.
Andrew Wilkinson, chief economic strategist at Miller Tabak, said the question was how quickly the Japanese currency would fall if Y100 were breached.
“As we saw with the price of gold lately, weakness breeds further weakness, with yen holders likely to sell upon news that Y100 has been triggered,” he said.
As US trading drew to a close, the dollar was weaker against the yen, having risen as high as Y99.88 at one point.
The yen’s initial bout of weakness gave fresh momentum to Japanese equities, with the Nikkei 225 Average climbing 1.9 per cent to its highest close in nearly five years.
This, in turn, gave an early boost to European stocks. The FTSE Eurofirst 300 rose as much as 1 per cent before paring its advance to end 0.2 per cent higher.
In New York, the S&P 500 rose 0.5 per cent after a choppy day’s trade, as US investors digested quarterly results from the likes of Caterpillar and Halliburton.
The CBoE Vix volatility index – Wall Street’’s “fear gauge” – fell 4 per cent.
Meanwhile, Italian stocks outperformed and the country’s government bond yields fell after Giorgio Napolitano, head of state, was elected for a second term at the weekend – prompting hopes of an
end to Rome’s political gridlock.
The FTSE MIB share index rose 1.7 per cent, while the yield on Italian two-year debt fell to a record low and that on the country’s 10-year paper touched its lowest since November 2010.
“President Napolitano’s re-election is a positive for Italy and will pave the way for a coalition government,” said Alberto Gallo, strategist at RBS. “This will buy time, but the medium-term situation remains difficult for Italy’s banks and small firms.”
However, the euro drew little comfort from hopes of a more constructive political backdrop as it held steady at $1.3048.
The broadly hesitant tone of global equity markets helped keep demand for highly rated government bonds alive.
The yield on the 10-year US Treasury was down 1 basis point at 1.70 per cent while that on the German Bund fell 2bp to 1.23 per cent.
Industrial commodities put in mixed performances. Brent oil managed a rise of 74 cents to settle at $100.39 a barrel after last week falling to as low as $96.75. But copper shed nearly 1 per cent to $6,935 a tonne on the London Metal Exchange – close to an 18-month low struck last week.
Gold, meanwhile, continued to recover after tumbling last week to its lowest level in two years. The yellow metal rose another 1.5 per cent to $1,425 an ounce.
“The recent plunge in gold prices has raised many investor concerns about the driving factors of the metal,” said Johannes Jooste, chief market
strategist Emea at Merrill Lynch Wealth Management.
Mr Jooste added: “Combined with the falls in industrial metals and oil prices too, many market participants may wonder whether commodity prices are signalling an economic slowing in coming months.”
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