Stocks and oil rallied Monday on bargain-buying after last week’s blow-out, with traders tracking a healthy Wall Street performance fuelled by comments from a top Federal Reserve official that the spread of the Delta variant could cause him to reconsider plans to taper monetary policy.
Fears about the Covid mutation have rattled world markets as it forces some governments to reimpose containment measures, while sentiment was jolted further last week by minutes from the Fed’s July meeting indicating it could start withdrawing its vast financial support by year’s end.
The colossal bond-buying programme and record-low interest rates have been a key pillar of the global recovery for more than a year, and the prospect of the cash being withdrawn has stalled that advance.
However, Dallas Federal Reserve boss Bob Kaplan, who is considered a policy hawk, suggested he could rethink his view to taper soon in light of the Delta variant’s spread, which is showing signs of hobbling economic growth.
“The thing that I am going to be watching very carefully over the next month, before the next (Fed) meeting, is (whether) it is having a more material impact on slowing demand and slowing GDP growth,” he said.
“I’m going to keep an open mind on that, and if it is having a more negative effect that might cause me to adjust my views somewhat from ones that I’ve stated.”
Observers said the general consensus is that even when the Fed finishes winding back support, it is unlikely to immediately start hiking interest rates.
“Markets react to interest-rate hikes much more than tapering and we expect a pause between tapering and the first hike, suggesting liftoff in 2023 and not before,” said Esty Dwek of Natixis Investment Managers.
Bitcoin back above $50,000
Focus is now on Fed chief Jerome Powell’s (picture) speech to the Jackson Hole annual conference of central bankers and finance chiefs, with hopes for a clue about a taper timetable.
All three main indexes on Wall Street rallied Friday, and Asia picked up the baton at the start of the week.
Tokyo jumped 1.8 percent while Hong Kong, Shanghai, Bangkok and Jakarta were all up more than one percent. Sydney, Seoul, Wellington and Mumbai also advanced, while Taipei jumped more than two percent.
London, Paris and Frankfurt opened sharply higher.
The positive start was mirrored in oil markets, with both main contracts enjoying big gains, having suffered heavy losses recently owing to concerns that the Delta spread would impact demand as countries restrict people’s movements.
Crude rallied more than two percent, helped by a dip in the dollar caused by the Kaplan remarks, while observers said concerns over demand could prompt OPEC and other major producers to reconsider plans to increase output each month.
Still, while the week has got off to a healthy start, investors remain cautious about Delta’s effect on the recovery outlook, while China’s ongoing regulatory clampdown is also keeping optimism in check.
Bitcoin broke back above $50,000 for the first time since mid-May, boosted by bargain-buying and leading some to predict the cryptocurrency could now be on course to hit $100,000.
“We’re seeing some very bullish signs here,” Vijay Ayyar, head of Asia-Pacific with crypto exchange Luno in Singapore, said. The currency could “test all-time highs again”, he added.
Bitcoin hit a record of almost $65,000 in April before suffering a sharp sell-off over the following months.
Key figures around 0810 GMT
Tokyo – Nikkei 225: UP 1.8 percent at 27,494.24 (close)
Hong Kong – Hang Seng Index: UP 1.1 percent at 25,109.59 (close)
Shanghai – Composite: UP 1.5 percent at 3,477.13 (close)
London – FTSE 100: UP 0.2 percent at 7,104.57
Dollar/yen: UP at 109.92 yen from 109.80 yen at 2050 GMT on Friday
Pound/dollar: UP at $1.3657 from $1.3626
Euro/dollar: UP at $1.1725 from $1.1705
Euro/pound: DOWN at 85.85 pence from 85.87 pence
West Texas Intermediate: UP 2.3 percent at $63.57 per barrel
Brent North Sea crude: UP 2.4 percent at $66.76 per barrel
New York – Dow: UP 0.7 percent at 35,120.08 (close)