Traders see ECB pick as rates dove
Record-low bond yields in Europe and the expectation of further interest rate cuts by central banks worldwide helped push global stock market indices higher yesterday as the benchmark US S&P 500 hit another record high.
European Union leaders' nomination of Christine Lagarde, the head of the International Monetary Fund, to replace Mario Draghi as president of the European Central Bank reinforced expectations of more monetary policy easing if it is needed.
Traders greeted the decision by sinking German 10-year bund yields to record lows of minus-39 basis points, lowering Italian two-year yields back into negative territory for the first time in over a year, and lifting stocks.
The yield on 10-year UK gilts fell four basis points to 0.687pc, which left it below the Bank of England's main policy rate for the first time in a decade. US treasury yields slumped to their lowest level since late 2016.
"We have already seen some weak data in recent weeks, so that is the backdrop," said Elwin de Groot, head of macro strategy at Rabobank. "And now we have Christine Lagarde as the likely successor of Mr Draghi at the ECB, which for the market says that the dovish policies will continue."
On Wall Street, the Dow Jones Industrial Average rose 61.4 points, or 0.23pc, to 26,848.08. MSCI's gauge of stocks across the globe gained 0.26pc, following equity gains in Europe.
Investors continued to seek out the safe haven of bonds due to concerns of slowing global growth, after data showed Britain's economy apparently shrunk in the second quarter.
Benchmark 10-year US treasury notes rose, pushing down yields 1.96pc.
"The latest downturn has followed a gradual deterioration in demand over the past year, as Brexit-related uncertainty has increasingly exacerbated the impact of a broader global economic slowdown," IHS Markit chief business economist Chris Williamson said of the UK's reading.
Oil prices also rose after data showed US crude stockpiles fell more than expected last week.
They remained wobbly, however, after falling more than 4pc on Tuesday, even after Opec and allies agreed to extend supply cuts.