January 4, 2018 / 8:32 AM / 3 months ago

Daily Briefing: New Year equity boom continues

LONDON (Reuters) - If anything, last year’s global equity market boom seems to be accelerating in 2018.

Women, dressed in ceremonial kimonos, smile in front of an electronic board displaying the Nikkei average as they pose after the ceremony which kicks off the first day of trading in 2018 at the Tokyo Stock Exchange in Tokyo, Japan January 4, 2018. REUTERS/Kim Kyung-Hoon

More records and milestones keep falling around the planet and in historically low volatility. Why? The world economy is booming, with relatively modest inflation that leaves credit still extremely cheap even if policy is tightening gradually.

Federal Reserve policy meeting minutes released late Wednesday did little to disturb that notion. Even if Fed futures expectations of another interest rate rise by March nudge up a bit after, the market is still not even fully priced for three 2018 hikes yet.

And so, Wall St’s S&P500 rose above 2,700 for the first time ever on Wednesday, with tech giants leading the way with gains of more than 1 percent for the sector and the Nasdaq clocking new records too. At a mere 9.15 percent, the Vix volatility gauge closed just a whisker above its record closing low from November.

The dollar, which had rallied on Wednesday, was on the back foot again this morning, with euro/dollar back up to $1.2033. Ten-year Treasury yields were little changed, but slightly firmer short-term rates saw the 2-10 year yield curve flatten again to about 51 basis points.

The big Asia bourses kept up the bullish momentum overnight however – with a roaring return from holiday for Tokyo. The Nikkei 225 was up 3.3 percent – its biggest one-day gain in more than a year and sending the index to its highest since January 1992. China’s CSI300 added almost half a percent too, recording its fifth straight daily rise as Chinese service sector readings showed the fastest pace of expansion in more than three years. Only South Korea stocks bucked the trend, sliding 0.8 percent ahead of earnings guidance from Samsung next week.

The European service sector readings are due out later today and euro stocks futures are up about 0.3 percent ahead of the open. Euro markets, eyeing some of the best business growth surveys since the launch of the single currency in 1999, are watching closely for signs that the pace of the expansion will force the European Central Bank to rethink its deeply negative interest rate-setting sooner than currently priced.

The energy sector is another driver this week, with Brent crude above $68 for the first time since mid-2015 - boosted by tensions in key producer Iran and by ongoing OPEC-led output cuts. Year-on-year gains in Brent are now running at more than 20 percent.


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Editing by Gareth Jones

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