* Markets wager on policy stimulus as economic news
* Bond prices rally globally, German yields turn negative
* Sterling slugged as BoE changes tack on rates
By Wayne Cole
SYDNEY, Aug 14 Asian shares pushed higher on
Thursday after a flood of soft economic data led investors to
wager on a ceaseless fountain of stimulus from major central
banks, sending bond yields tumbling across the globe.
An economic contraction in Japan, a shock fall in Chinese
loans, a surprisingly dovish turn by the Bank of England and a
sluggish reading on U.S. retail sales all combined to make any
tightening in policy seem a very distant prospect.
Indeed, investors suspect further easing is in the cards
with data on euro zone growth and inflation later Thursday
expected to pressure the European Central Bank for more action.
Yields on Germany's two-year debt actually went
negative, meaning investors were paying for the privilege of
lending Berlin money.
"Risk-correlated assets have responded positively to weak
activity data in the U.S., China, the euro area and Japan,"
summed up Barclays forex strategist Aroop Chatterje. "Euro area
inflation remains subdued, which could put pressure on the ECB."
But it is hardly alone.
"China's growth recovery remains fragile," he added. "More
forceful policy easing such as interest rate cuts is likely
needed for the government to achieve its growth target."
The Bank of Korea is widely expected to cut its rates by 25
basis points to 2.25 percent on Thursday. That would be the
lowest since early November 2010 and a marked turnaround from
just a month ago.
The thought of endless stimulus helped take the sting out of
the disappointing economic news and underpinned equities.
Japan's Topix rose 0.6 percent, while the Australian
market added 0.4 percent. MSCI's broadest index of
Asia-Pacific shares outside Japan was up 0.1
On Wall Street the Dow ended Wednesday 0.55 percent
firmer, while the S&P 500 added 0.67 percent and the
Nasdaq 1.02 percent. All 10 S&P primary sector indexes
gained, while the Nasdaq Biotech Index led the charge
with a 2.1 percent advance.
MSCI's world stock index rose 0.6 percent.
Brazil was one of the few markets to lose ground as news
that presidential candidate Eduardo Campos was killed in a plane
crash knocked the Bovespa index down 1.5 percent.
NO HIKES HERE
Bond investors were also enticed by the outlook for easy
money as subdued U.S. retail sales led markets to again push
back the day when the Federal Reserve might first raise rates.
Fed fund futures for June next year <0#FF:> closed at their
highest in over two months at 99.75, implying a rate of just
Two-year U.S. Treasury yields dived to their lowest close in
nine weeks at 0.4159 percent, rallying from a top of
0.59 percent in just 10 sessions.
Across the Atlantic, the Bank of England caused a major
surprise by slashing its forecast for wage growth and saying
higher rates hinged largely on an improved outlook for pay.
With traders abandoning bets for a near-term hike, yields on
two-year gilts plunged 10 basis points to 0.719
percent, the biggest daily fall since late June 2013.
The pound dropped to its lowest in four months around
$1.6680. It also plumbed a near seven-week low at 80.20
pence per euro and slid 0.7 percent on the yen to
The setback for sterling helped the dollar index edge
up to 81.611. The euro held steady at $1.3364, though it
could come under pressure if growth and inflation figures later
in the day prove soft.
In commodity markets, worries about Chinese demand sent
copper to a seven-week low below $6,874 per tonne.
Spot gold, in contrast, found support from the outlook for
loose monetary policy and edged up to $1,311.40 an ounce.
Prices for Brent crude oil touched a 13-month trough
at $102.37 a barrel before steadying at $103.99. U.S. crude
was down 21 cents at $97.38.
(Editing by Shri Navaratnam)