Global equities struggle after Fed shift, Japanese markets shake as Abe resigns

LONDON (Reuters) – Stock markets struggled for direction on Friday as investors worried about a lack of detail in the US Federal Reserve’s policy change, while Japanese markets were awakened when Prime Minister Shinzo Abe sacked for health reasons.

FILE PHOTO: A pedestrian in the offices of the London Stock Exchange in the City of London, UK, 29 December 2017. REUTERS / Toby Melville / File Photo

The broadly anticipated shift of the Fed in its policy framework, unveiled on Thursday, saw the central bank place more emphasis on stimulating economic growth and letting less on concerns about inflation run too high. The policy aims at averaging 2% inflation, so that a too low pace would be followed by an attempt to raise inflation “moderately above 2% for a while.”

Shares initially shook higher as investors bet that interest rates would stay longer and more stimulus was likely.

But stock markets are meanwhile bumpy, with some traders disappointed that the Fed will not reveal more details on how the new framework will work or provide directions on what it will do at its next policy meeting.

“It’s not so much about what to do with inflation when it comes, but about inflation above target. The challenge is to get inflation on target and not much was said about it, ‘said Colin Asher, a senior economist at Mizuho.

The Euro STOXX 50 recovered from previous losses and was last 0.03%, while Germany’s DAX slipped 0.49%. Britain’s FTSE 100 was 0.4% higher.

U.S. stock futures climbed higher and back to near record levels after earlier volatile trading raised concerns about the impact of a hurricane that hit the center of the U.S. oil sector. S&P 500 e-mini futures were last up 0.34%.

Japanese stocks fell, with the Nikkei 225 down 1.4%. Abe resigned Friday due to groaning health concerns, saying he would remain as prime minister until a new leader was appointed.

There has been speculation all week about his health.

Asian stocks hovered higher, with MSCI’s broadest index of Asia-Pacific stocks outside Japan gaining 0.19%.

“This is negative for Japanese equities, as it raises questions about what policies will follow. We do see the familiar pattern of falling stocks pushing the yen up, ”said Junichi Ishikawa, senior foreign exchange strategist at IG Securities in Tokyo.

The yen, seen as a safe haven currency to buy in times of uncertainty, jumped 0.4% to 106.12 yen per dollar.

Elsewhere in currency markets, the dollar fell 0.6% against a rate with other currencies = USD>.

The greenback has fallen sharply since June, as many analysts predict more pain ahead, as US rates are likely to remain low for longer and the political uncertainty ahead of the US presidential election in November.

The euro tackled the dollar’s weakness to gallop another 0.7% higher and was last at $ 1.1905, close to a more than two-year high it recently touched.

Yields on the US 10-year treasury rose to as high as 0.789%, the most since June 10, causing the yield curve to steepen, due to the Fed’s tolerance of higher inflation. It was last at 0.7671%, still 2 basis points on the session.

Crude oil prices disappeared as a massive storm swept across the country past the heart of the U.S. oil industry in Louisiana and Texas without widespread damage to refineries.

Brent crude fell 0.47% to $ 44.88 a barrel. US West Texas Intermediate (WTI) crude fell 0.49% to $ 42.83 a barrel.

FILE PHOTO: A man wearing a protective face mask, following an outbreak of coronavirus (COVID-19), runs for a stock exchange listing outside a brokerage in Tokyo, Japan, March 10, 2020. REUTERS / Stoyan Nenov

Gold prices jumped 1%, with the spot price at $ 1,949 per ounce. The precious metal tends to perform well when the dollar is weak and the US Federal Reserve sends a dull message about the future path of interest rates.

Graph: here assets performance 2020

Graph: World FX rates in 2020 here

Additional reporting by Sujata Rao in London and Stanley White in Tokyo; Edited by Kirsten Donovan

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