Article 34Q04 World stock markets hit record highs as Japan and Spain rally - as it happened

World stock markets hit record highs as Japan and Spain rally - as it happened

by
Graeme Wearden (until 3.30) and Nick Fletcher
from Economics | The Guardian on (#34Q04)

The MSCI All-Country index is at a new peak, as Spain's IBEX rebounds and Japan's Nikkei hits its highest level since 1996

5.34pm BST

Spain ended as the standout performer among European markets, despite the uncertainty over the standoff between Madrid and the Catalan independence seekers. At the very least, the demand for clarification over the independence situation meant the immediate tensions have been defused. David Madden, market analyst at CMC Markets UK, said:

The stalemate between the region and the Spanish government is still ongoing, but the news that the region isn't rushing for the exit has lifted investor confidence. We don't have any clarity as to how the situation will develop from here, but at least the market can be confident of political stability in the country. Dealers may become nervous again when the separatists try and pursue their agenda, but at the moment normality has returned to the Spanish market.

4.22pm BST

Despite the rally in Japanese and Spanish stock markets, it has been fairly lacklustre elsewhere. Chris Beauchamp, chief market analyst at IG, said:

It hasn't been the busiest day in global markets, despite further developments in the Spain/Catalonia situation. A lack of heavy data and earnings has characterised the week thus far, although with US banks on the calendar for the next two days that is about to change.

Weakness throughout the morning was replaced by small gains, as the Spanish response to the Catalan (sort of) declaration of independence came in the form of a gentle, 'could you possibly clarify that?' from prime minister Rajoy.

4.12pm BST

Back with the rise in the Japanese stock market, and this may not be the end of it, according to Trevor Greetham, head of multi asset at Royal London Asset Management. He says:

Japan's stock market has hit a two decade high but we think it has further to run. The economy is picking up, corporate profits are being upgraded and the central bank is on the side of equity holders - unusually they have pledged to overshoot their inflation target of 2% and are keeping policy very loose until they get there.

This policy commitment makes Japan's stock market a useful hedge against possible losses on bond portfolios if US interest rates continue to rise as we expect. Japanese long term rates are pinned down close to zero. Whenever US bonds sell off, widening interest rate differentials weaken the yen and boost the export-oriented Nikkei.

4.01pm BST

Global central banks have begun to start switching off the money taps which have been supporting the world economy and stock markets since the financial crisis.

The US Federal Reserve has already begun raising interest rates, with another increase possible before the year end. The Bank of England is hinting at a rise in November despite an uninspiring UK economic performance, and the European Central Bank is looking at tapering its bond buying programme.

We expect global growth to slow only modestly as the era of easy money starts drawing to a close. The monetary tightening is set to be gradual, limited and staggered, with some countries only starting to tighten as others are finishing. And the relationship between interest rates and GDP growth has generally been weak. But with debt still high, the world economy would struggle with a much bigger tightening.

The backdrop to this tightening is a reassuring combination of faster economic growth and low inflation. The world economy was only hit hard before when rates were raised abruptly to dampen high inflation. And although reversing quantitative easing is an added complication this time, central banks have already taken key steps along the path of monetary tightening with little effect on the economy or the markets.

Even a gradual approach to tightening may prove to be too much if demand is more fragile, or markets more nervy, than we think. And if central banks need to back-track, they have limited ammunition with which to loosen policy again. The gradual approach also risks inflating asset bubbles further, storing up trouble for the future.

There is also a risk that a slow tightening simply turns out to be infeasible if inflation takes off, leading policymakers to tighten policy more rapidly than they have signalled. With debt to income ratios still high, and saving ratios low, a sharp rise in interest rates would make us significantly more worried.

3.35pm BST

Elsewhere Opec, the organisation of petroleum exporting countries, has forecast higher demand for its oil in 2018.

In its monthly report it said the world would need 33.06m barrels a day of its crude next year, up 230,000 barrels from its previous forecast. It suggested that its agreement to curb output was helping to get rid of a supply glut. But it does not expect prices to surge, forecasting that crude will remain between $50 and $55 a barrel in the next year.

3.25pm BST

Q: Is there a tax rate above which it would be counter-productive to tax the rich?*

The IMF's Vitor Gaspar says the IMF hasn't come to any conclusions on this.

3.04pm BST

Surely no-one can argue with this chart?....

#FiscalMonitor: Improve access to #health & #education can help tackle #inequality. More on: https://t.co/QA2BcXW8e5 pic.twitter.com/KxTxN19Bxj

3.00pm BST

The IMF's concerns about inequality might grate with readers in Greece, for example, where years of austerity have driven millions deeper into poverty.

Nadia Daar, who runs Oxfam's office in Washington DC, hopes that today's warm words will actually translate into action:

@IMFNews saying a whole lot of thing that @Oxfam agrees with in #FiscalMonitor. wanting to now see this translate into IMF advice & lending

2.57pm BST

Vitor Gaspar, the IMF's Director of Fiscal Affairs, is taking questions now.

He says improving heathcare provisions for the poor would help tackle inequality.

#IMF's Gaspar: Closing the inequality gap in basic health coverage could raise life expectancy by 1.3 years s #FiscalMonitor #IMFMeetings pic.twitter.com/hCS89tqmm4

2.53pm BST

The IMF is concerned that inequality has risen in more than half the world's countries in the last three decades.

That includes three major nations - China, India and the United States. - even though inequality has declined across the globe.

Some countries have experienced a reduction in inequality while others, particularly advanced economies, have seen a significant increase that has, among other things, contributed to growing public backlash against globalization.

53% of countries have seen a rise in #inequality in the last 30 years. Learn more on https://t.co/afZSnRaTFg #FiscalMonitor pic.twitter.com/2g3T3dP84w

2.44pm BST

The IMF are presenting the details of their Fiscal Monitor in Washington now - it's being streamed live here.

Watch Live: IMF's Vitor Gaspar present the October 2017 #FiscalMonitor. Join us now on https://t.co/Det8E26xhp #IMFMeetings pic.twitter.com/pmKID8vzqr

2.42pm BST

NEWSFLASH: The International Monetary Fund is calling on governments to consider tackle inequality by raising taxes on the rich.

In its latest Fiscal Monitor report, just released, the Fund argues that taxing top earners more would not have an adverse impact on growth.

In an analysis certain to be seized on by Labour as backing for its tax strategy, the IMF used its influential half-yearly fiscal monitor to attack the rationale for the reductions in tax for the highest earners in recent decades.

The IMF said tax theory suggested there should be "significantly higher" tax rates for those on higher incomes but the argument against doing so was that hitting the rich would be bad for growth.

IMF: higher taxes for rich will cut inequality without hitting growth https://t.co/9Nd7SbZuph

2.33pm BST

David Lipton, the IMF's deputy managing director, sums up the challenge facing politicians and central bank chiefs -- tackle risks, while avoiding a crash.

Key challenge for policy makers: Contain buildup of financial vulnerabilities while keeping monetary policy supportive of the recovery #GFSR

As banks strengthen balance sheets & deal w/ legacy issues, supervisors should focus on business models & sustainable profitability. #GFSR pic.twitter.com/hy6vgA9ZFW

2.12pm BST

The International Monetary Fund has sounded a new warning that the good times in the global economy may not last.

In its new Global Financial Stability Report, the Fund points its finger at the rising debt piles across advanced and emerging economies. It fears that the increased risk appetite and the ongoing search for yield means investors could be too reckless, with dangerous consequences.

"While the waters seem calm, vulnerabilities are building under the surface [and] if left unattended, these could derail the global recovery.

IMF GFSF report warns of complacency as it identifies 5 risks: market risk rising, high debt levels, ext. borrowing, China & low volatility pic.twitter.com/CYt4jz7yS4

Aggregate G20 debt-to-GDP in governments, households, and companies is higher now than before the crisis. #GFSR https://t.co/QM0N6d1gpj pic.twitter.com/lFh8fV0dV9

1.55pm BST

Over in Westminster, the Unite trade union have held a protest urging the government to do more to protect Bombardier workers in Northern Ireland.

Those jobs are threatened by the 220% tariff which the US government is imposing on Bombardier planes sold to Delta Airlines, following a complaint by Boeing that its Canadian rival was getting unfair subsidies.

Whole load of Boeing posters up in the Westminster subway - hoping Parliament will forgive them for stuffing Bombardier? pic.twitter.com/yQm4mG8dpH

1.32pm BST

CNBC's Michael Santoli suggests Donald Trump shouldn't demand too much credit for the US stock market rally.

After all, shares rallied just as strongly in the 11 months after Barack Obama was re-elected to the White House in 2012.

The S&P 500 is up 19.21% since Election Day 2016.

On this date in 2013, the S&P 500 had gained 19.24% from Election Day 2012.

BTW, not really a president-vs.-president thing. Simply a reminder that, in a bull market, an 11-month rally of ~20% isn't all that rare.

1.24pm BST

US president Donald Trump is unhappy that the media aren't giving more coverage to the stock market rally (maybe he's not reading the right liveblogs.....)

He's tweeted that the US stock market has gained over $5 trillion since he won last November's election:

Stock Market has increased by 5.2 Trillion dollars since the election on November 8th, a 25% increase. Lowest unemployment in 16 years and..

...if Congress gives us the massive tax cuts (and reform) I am asking for, those numbers will grow by leaps and bounds. #MAGA

It would be really nice if the Fake News Media would report the virtually unprecedented Stock Market growth since the election.Need tax cuts

12.22pm BST

Sam Jones, our correspondent in Barcelona, says Mariano Rajoy has just put the ball back in Catalonia's side of the court in the independence crisis.

He writes:

Rajoy, who has refused to rule out invoking article 155 of the Spanish constitution to take control of Catalonia, was quick to seize on the ambiguity of [Catalan president] Puigdemont's position, accusing him of deliberately sowing confusion.

"The cabinet has agreed this morning to formally require the Catalan government to confirm whether it has declared independence after the deliberate confusion created over whether it has come into effect," he said in a television address on Wednesday.

Spanish PM asks Catalonia: have you declared independence or not? https://t.co/MzOGJLrBfQ

12.09pm BST

Back in Madrid, prime minister Mariano Rajoy has demanded full clarity over the Catalonian president's announcement yesterday that he has 'suspended independence'.

Spanish Prime Minister Mariano Rajoy demanded on Wednesday that the Catalan leader clarify whether he has declared independence, issuing a veiled threat that the central government could limit or rescind the province's autonomy if he has.

He said the Catalan government's response would be crucial in deciding "events over the coming days."

11.57am BST

Lord Karan Bilimoria, founder and chairman of Cobra Beer, is worried about a "no deal" outcome from Britain's Brexit negotiations.

This option re-emerged from the fog of Brexit yesterday, when prime minister Theresa May told MPs that it was possible that Britain might not reach an agreement with Brussels over its future arrangement.

"No deal would be the worst possible outcome and when the public voted to leave they didn't give the government a blank cheque to leave on any basis whatsoever.

"In practical terms it would be very difficult because we export Cobra from Burton on Trent to almost every country in Europe. We manufacture two of our products in Belgium, and import from Belgium into the UK. At the moment it's seamless. If we suddenly have to deal with border controls and checks and the extra cost of import costs both ways, that makes our product less competitive. It's going to be terrible.

"The currency effect helps our exports on the one hand but we as a country are a net importer so the consumer is starting to take a hit. We supply 98.5% of the Indian restaurants in this country. They are taking a hit because a lot of their ingredients are imported so for our export business, yes it helps, but as a country we're net importers.

"I'm proud to be a British manufacturer but we're reliant on inward investment. Britain is the largest recipient of inward investment in the whole of Europe and our position at the top table of the world is already hugely diminished already, let alone leaving the European Union."

11.45am BST

Chancellor Philip Hammond has been discussing Brexit in front of the Treasury committee this morning.

Philip Hammond warns MPs to brace for possibility of a "bad-tempered breakdown in the (Brexit) negotiations."

Related: Philip Hammond says UK must prepare for possible 'bad-tempered breakdown' of relations with EU - Politics live

11.31am BST

The Nikkei's rise to a 21-year high today has stirred some memories for Nick Leeson, the original Rogue Trader.

Nikkei225 at highest level today since 1996 - probably not far off my break-even point. If only they'd waited!!

The use of the word "probably" demonstrates why things went wrong really doesn't it?! https://t.co/saxKFSGT0A

10.43am BST

The BBC's Katya Adler has the latest from Spain....

Rumours that Spanish PM will call on Catalan Pres to clarify if declaring independence or not #catalunya

If not independence, Spanish gov could start dialogue bc will consider #Catalunya gov as having returned to 'legality' ..

10.36am BST

Joshua Mahony, market analyst at IG, agrees that Catalonia's decision to back away from declaring full-blown independence last night has reassured the markets.

He says:

European markets are looking towards Spain for inspiration, as the decision from Catalan leader Carles Puigdemont to delay a declaration of independence has led to a sharp rise in the IBEX and euro.

Rajoy to give a press conference at 1100BST

9.48am BST

Boom! World stock markets have hit a new all time high.

MSCI's All-World stocks index, which tracks 2,400 companies around the globe, has inched up to 493.31 points this morning.

"This episode could serve as a deterrent for other independence movements in Spain and Europe rather than lead to a rise in break-up risks. Markets rightly maintain their calm.

9.21am BST

Relief over Catalonia has also pushed the euro to a two week high, at $1.184 against the US dollar.

Spanish bonds are also recovering.

Yield spread between 10-year Spanish and German government bonds slips to 120.7 bps. Had widened to 136 bps last week on Catalan tensions

8.49am BST

Spain's stock market has opened strongly, on relief that Catalonia's president has backed away from declaring independence.

A strong sense of relief was felt across financial markets on Tuesday evening, after Catalan leaders signed a "symbolic" declaration of independence, but immediately suspended its formal approval and called for talks with Madrid.

Although President Carles Puigdemont's remarks disappointed many of his ardent supporters, who were hoping for a unilateral declaration of independence, his speech was music to investors' ears, as this softer approach eased tensions.

8.39am BST

The Nikkei's rally comes despite a big scandal enveloping Japan's third-biggest steel maker, Kobe Steel.

Kobe has shocked Japan, and beyond, by admitting that it has fabricated data on components used in cars, aircraft and space rockets.

8.02am BST

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Japan's stock index has closed at its highest level in over two decades, as optimism over the global economy builds and geopolitical worries ease.

Japanese stocks register their highest closing level in 21 years, since November 1996. Nikkei up nearly 10 percent in the last month. pic.twitter.com/ic0TUQQ0aV

Crowding round the Reuters terminal @AFPTokyo to see if Nikkei hits a 21-year-high. It did!

The Nikkei's wild ride from December 1996 to today's new record closing high pic.twitter.com/tybDFbimgF

"One of the biggest drivers of global equities is the United States and some of the macro data coming out from there has been quite positive.

There is also this view that China is travelling much better than many people had expected."

European opening call @LCGTrading $FTSE +11 points at 7549$DAX +16 points at 12965$CAC +8 points at 5371$IBEX +179 points at 10321

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