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Global stocks were on track for a second day of record highs as traders ignored signs of an economic slowdown in China to focus on optimism that the Federal Reserve remains persistent with its pandemic-era monetary stimulus.
The FTSE All World share index rose 0.2 percent after hitting an all-time high on Monday. The European Stoxx 600 stock index rose 0.2 percent, despite data showing that inflation in the eurozone hit a 10-year high of 3 percent year-over-year in August. However, the European Central Bank has pledged to keep borrowing costs negative until consumer price increases stay “permanently” above their 2 percent target.
The London FTSE 100 traded flat and the futures markets signaled that the S&P 500 and Nasdaq Composite on Wall Street would build on the records of the previous session.
In Asia, the Hang Seng Index in Hong Kong rose 1.3 percent, although the CSI 300 benchmark of mainland China stocks lost 0.2 percent after a survey of purchasing managers found that activity in the country’s service sector had slowed sharply.
Stocks rebounded in response to a speech by Federal Reserve Governor Jay Powell at the central banks’ Jackson Hole Symposium last week in which he spoke of the dangers of an over-hasty reduction in the Fed’s $ 120 billion monthly bond purchases -Dollar spoke.
The bond-buying program, which is set to fuel activity through the Covid-19 pandemic and continues despite the accelerating labor market improvement, has depressed income yields on US Treasuries and other debt and made riskier assets like stocks more attractive. Some analysts believe that stock market valuations are now too dependent on Fed movements as opposed to corporate earnings or the outlook for economic growth.
“The Fed is stepping in because it’s not just about reducing its monetary policy accommodation, but also providing clear guidance to the markets for future policy,” said Mobeen Tahir, associate research director at exchange-traded funds WisdomTree.
“This runs the risk of monetary policy itself becoming a cause of market volatility, with any slight restrictive tone from the central bank causing shocks.”
In China, the government’s manufacturing purchasing managers’ index returned 50.1 in August, below the previous month and just above the water mark of 50 that separates expansion from contraction. The PMI for the country’s non-manufacturing sectors fell to 47.5 from 53.3 in July, attributing Nomura economists to the government’s “draconian measures” to control the spread of the variant delta coronavirus, such as travel restrictions.
Technology stocks listed in China fell 1.5 percent on Tuesday after the government ordered that children should not play online games for more than three hours a week.
In other markets, the yield on the 10-year US Treasury bond, which is moving in the opposite direction to its rate, remained stable at 1.285 percent and has fallen from around 1.35 percent since the day before Powell’s Jackson Hole speech. The yield on 10-year German government bonds rose by 0.02 percentage points to minus 0.418 percent, according to the inflation data for the euro zone.
Brent crude, the global oil benchmark, fell 0.8 percent to $ 73.86 a barrel. The dollar index, which measures the greenback against the major currencies, lost 0.2 percent. The euro gained 0.3 percent against the dollar to $ 1.1827, while the pound sterling rose 0.1 percent to $ 1.3774.