* Europe's shares inch higher after Fed rate cut
* BOJ on hold, as expected; disappoints some who hoped for a
* Bond yields nudge up but stay below recent highs
* Oil futures drift higher as geopolitical risks remain
* Sterling waits for BoE's latest rate meeting, Brexit view
By Marc Jones
LONDON, Sept 19 (Reuters) - World share markets and bond
yields nudged modestly higher on Thursday as the U.S. Federal
Reserve's second interest rate cut of the year and promises of
support from other top central banks kept global recession
jitters at bay.
The effects of the trade war has seen monetary policy swing
back into support mode this year, but the Fed's central message
on Wednesday was that it wasn't expecting a major capitulation
of the economy. Japan and Switzerland then kept their deeply
negative interest rates on hold. The Brexit-constrained Bank of
England sat on its hands while an outlier hike in
Norway also came with a hint it would be the last. It was enough to push London's FTSE, Frankfurt's Dax and
Paris, Milan and Madrid up between 0.4% and 0.8% after what had
been a groggy Asian session. Tokyo's Nikkei and Chinese
blue=chip had finished 0.4% higher but Hong Kong, India and much
of the rest of the region had sagged. .MIAPJ0000PUS
"This is not ‘QE4ever,' as we've heard it called," analysts
at RBC said of the Fed's decision and signals. "We shouldn't go
too far in putting on QE-like trades."
Wall Street, meanwhile, seemed uncertain with traders still
not sure whether to feel underwhelmed by the Fed's cut or
relieved it saw no U.S. recession rumbling on the horizon.
The dollar .DXY saw a slight pullback in both Asia and
European trading, while the view of no economic Armageddon
squeezed up the benchmark government bond yields that act as a
proxy for global borrowing costs.
Two-year U.S. yields US2YT=RR , which are the most
sensitive to Fed policy, inched above 1.75%, while Italian debt
lead rise in European yields after surprisingly little demand
from banks for a new offering of interest-free European Central
Bank funding. "Today's number was a clear disappointment and suggests the
TLTROs (ECB funding offerings) will be a much less potent weapon
than the ECB was hoping," Nordea economist Jan von Gerich said.
PRESERVE AMMUNITION
Back in the currency markets, the Bank of Japan's inaction
saw the yen JPY=EBS rise off a seven-week low versus the
dollar .DXY and jump against a Australian dollar weighed down
by a 1-year high in unemployment which had boosted bets on a
rate cut there. AUDJPY=D3 The BOJ had maintained its pledge to guide short-term
interest rates at minus 0.1% and the 10-year government bond
yield around 0%. It also signalled it could add stimulus as
early as next month, but some traders had expected an immediate
move after the Fed's cut overnight. Yen bulls took the currency as far as 107.79 per dollar
before it settled at around 107.90 JPY=EBS for a gain of 0.5%
on the day. The move against the Aussie dollar had been as large
as 1%. AUDJPY=D3 . "There were large yen-buying orders before the BOJ, and that
just carried through," said Tohru Sasaki, head of Japan markets
research at J.P. Morgan Securities in Tokyo.
BACK TO THE FUTURES
In contrast to Europe's upward shuffle, U.S. stock futures
ESc1 were pointing to modest 0.1%-0.2% falls.
The S&P 500 .SPX had reversed losses and ended broadly
flat on Wednesday after Fed chief Jerome Powell said he did not
see an imminent recession or think the Fed will adopt negative
rates.
The Fed had cut interest rates to 1.75%-2.00% in a 7-3 vote
but made a point of saying the U.S. labor market remains strong.
So-called dot-plot forecasts from all 17 policymakers also
showed disagreement, with seven expecting a third rate cut this
year, five seeing the current rate cut as the last for 2019, and
five who appeared to have been against even Wednesday's move.
"This is a small positive for share prices as long as there
is no recession," said Shane Oliver, head of investment strategy
and chief economist at AMP Capital Investors in Sydney.
"The only problem is a 25 basis-point cut was already
expected, and the comments and dot-plot forecasts were not as
dovish as the market hoped."
Elsewhere in the currency market, sterling EURGBP=D3
slipped away from May highs against the euro as the Bank of
England laid out for the first time the potential damage that
could be caused by further Brexit delays. It came just after it was confirmed that London had sent
some new proposals to Brussels. "Political events could lead to a further period of
entrenched uncertainty," the BoE said.
"The longer those uncertainties persisted, particularly in
an environment of weaker global growth, the more likely it was
that demand growth would remain below potential."
Among commodities, oil LCOc1 surged over 2% to $65 per
barrel having looked to largely stabilised in recent days after
attacks in Saudi Arabia over the weekend had sent prices
soaring. Washington has blamed Iran for the attacks, a charge which
Tehran denies. U.S. Secretary of State Mike Pompeo has said the
strike was "an act of war."
Bank of Japan negative interest rates https://tmsnrt.rs/31gPRDp
Countries that spend biggest share of money on oil png https://tmsnrt.rs/31tPuFW
GRAPHIC-Global assets in 2019 http://tmsnrt.rs/2jvdmXl
GRAPHIC-World FX rates in 2019 http://tmsnrt.rs/2egbfVh
GRAPHIC-MSCI All Country Wolrd Index Market Cap http://tmsnrt.rs/2EmTD6j
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(Aditional reporting Stanley White in Tokyo and Dhara
Ranasinghe in London;
Editing by Shri Navaratnam and Nick Zieminski)