Stock markets are trading higher this morning, as we begin what could be a potentially pivotal week for shares around the globe. On Wednesday, the Bank of Japan precedes the Federal Reserve by just over 12 hours in announcing its latest monetary policy mix, and there’s a strong possibility that by the the time Janet Yellen has concluded her press conference, the recent concerns over central bank limitations continuing to prop up equity markets will have been either allayed or confirmed.
Miners rally from the open
The best performing stocks on the FTSE100 this morning come from the mining sector, with Anglo American (LON:AAL) leading the charge and trading higher by more than 4% on the day.The US dollar has weakened on the day and contributed to the rise in mining stocks, with the British Pound, Japanese yen and euro all higher against their US counterpart.
The index as a whole is up by just shy of 100 points, with the breadth of the gains especially impressive as only three shares trade in negative territory at the time of writing. Tesco (LON:TSCO), Royal Dutch Shell (LON:RDSa), Rolls Royce (LON:RR) and HSBC (LON:HSBA) illustrate this aptly, with all four stocks gaining by over 2% from their closing levels seen last week.
Markets fearful of policy tightening
One of the prevailing macroeconomic themes this month has been the changing expectations for the outcome of the Fed meeting, and with US rate-setters scheduled to begin deliberations tomorrow the moment of truth is almost upon us.
The slightly soft US employment report on the 2nd of September was warmly greeted by stock markets as it appeared to have hit the sweet spot for equity bulls, in that it was strong enough to suggest the labour market of the world’s largest economy remained robust, but in coming in below the previous two readings offered a clearly reluctant Fed an excuse to postpone further rate hikes.
This school of thought was surprised when several Fed members delivered hawkish comments in the weeks following the NFP release and Friday’s latest inflation figures - which showed core inflation above the central bank’s 2% target - have added further support to the case that the Fed may hike rates for the second time in under a year this Wednesday.
The situation in Tokyo is quite different, with the Bank of Japan remaining keen to stress that it will provide whatever stimulus necessary to end the deflationary cycle that has weighed on the economy for many years, but markets are increasingly skeptical as to its ability to offer this.
Whilst the specifics of US and Japanese monetary policy are quite different, Wednesday’s outcome of the meetings may ultimately lead to the same thing: global stock markets that have grown accustomed to central bank support finding themselves more exposed than they would like.