Tuesday 21:00 BST. US stocks powered to fresh record highs as the prospect of continued policy accommodation from the world’s central banks left bulls firmly in the driving seat.
But it was a poor session for gold, as the metal broke out of its recent narrow range to trade at its lowest point since mid-February.
In New York, the S&P 500 equity index ended 0.6 per cent higher at 1,911, having earlier reached a new intraday peak of 1,912.28.
Across the Atlantic, the FTSE Eurofirst 300 rose 0.2 per cent to a fresh six-year peak, while the Nikkei 225 in Tokyo secured a fourth successive advance with a gain of 0.2 per cent.
Underpinning the bullish mood in world stock markets was a growing expectation that the European Central Bank would ease monetary policy further when it meets next week.
Mario Draghi, ECB president, offered a further hint on Monday that such a move might be on the cards when he warned that a combination of low inflation and weak lending risked derailing the region’s fragile recovery.
“We expect the ECB in June will cut the key rates by 10-15 basis points and thus take the deposit rate negative, provide liquidity-enhancing measures including leaving the Securities Markets Programme unsterilised, and deliver credit easing measures to help small and medium enterprises [SMEs] in the periphery,” said Divyang Shah, a global strategist at IFR Markets.
But Mr Shah added that the scope for the ECB to surprise the markets was now limited.
“A three to five year longer-term refinancing operation directed at SME debt or a Bank of England-type funding for lending scheme would be seen as a positive surprise, but maybe not enough to provide additional downside on euro/dollar or money market rates.”
The euro remained resilient, with the single currency edging back less than 0.1 per cent against the dollar to $1.3636, and inching higher versus sterling. The yield on the German 10-year government bond fell 3 basis points to 1.33 per cent while the two-year Schatz yield slipped to 0.05 per cent, the lowest since November 2013.
Italian yields steadied after falling sharply on Monday as the markets continued to digest the implications of the European Parliamentary election results, which saw “populist” anti-Brussels parties put in strong performances.
Alain Bokobza, head of global asset allocation at Société Générale, argued that the poll results had put traditional parties in many countries under pressure – and that this would hasten much-needed, and investor friendly, reforms.
“The ECB’s too-tight monetary policy has been suppressing growth, which in turn has sustained intolerably high unemployment,” he said.
“With voters clearly deeply unhappy with the status quo, more than ever we expect a strong easing signal at the ECB’s June 5 meeting, which should boost liquidity and eurozone asset valuations across all asset classes.”
But Ulrich Leuchtmann, a currency strategist at Commerzbank, said the chief loser from the election results was in fact the ECB itself, rather than pro-Europe parties.
“Any hope that a European unification process might solve some of the problems within the eurozone seems to be off the table for the foreseeable future,” he said.
“The central bankers in Frankfurt cannot expect politicians to implement the required reforms. Thus it will still be the ECB which needs to assure that no eurozone member country will get into trouble.”
Away from Europe, the latest US data releases painted something of a mixed picture.
Headline durable goods orders in April were flattered by an unexpectedly big increase for the defence component, although March’s reading was revised sharply upwards. Consumer confidence rose slightly in May while there were solid seasonal gains in home prices in March.
Nick Stamenkovic, a macro-strategist at RIA Capital Markets, said consumers appeared in good spirits, although companies’ investment intentions remained cautious.
“Indeed, the US recovery is showing few signs of gathering momentum at this juncture, keeping the Federal Reserve on hold and supporting short-dated Treasuries,” he said.
The 10-year Treasury yield was down 2bp at 2.52 per cent.
Gold came under increased pressure following the release of the day’s US economic data, with the metal sliding $25 to $1,267 an ounce.