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Global Markets: Japan's rate decision lifts bonds, shares under tech cloud

Reuters  |  LONDON 

By Rao

LONDON (Reuters) - Reassurance by the Bank of that it will keep its super-easy monetary policies in place for an extended period pushed the yen and global bond yields lower on Tuesday, though mounting concerns about the tech sector kept world stocks under pressure.

A recent report that the BOJ could be debating scaling back its massive stimulus programme had sent Japanese bond yields to 1-1/2 year highs, spilling into euro zone and U.S. debt markets. That helped push yen more than 2 percent off six-month lows hit against the dollar in early July.

But while the BOJ announced some tweaks to its equity purchase programme and said its stimulus plan would be more flexible, the changes did not show any inclination for radical shifts from its accommodative stance.

In response, yields on 10-year bonds fell 3 basis points, and 40-year yields slid nearly 9 basis points, pushing 10-year U.S. and German yields down around 2-3 bps.

"The BOJ is important in the sense of what they didn't do," said Andrew Milligan, at in

"It was disappointing for some investors who thought they would be more hawkish in their approach and the market reaction, with lower yen and bond yields, shows that view which many people held, is mistaken."

The yen slipped around 0.2 percent to trade around 111.2 yen. Many analysts now see it easing to around 113, especially if the delivers a hawkish interest rate message when its policy meeting ends on Wednesday.

The dollar was flat against a basket of currencies but looks likely to snap a three-month streak of gains as markets have more or less priced in two more Fed rate hikes this year. The greenback had rallied more than 5 percent in the second 2018 quarter.

The BOJ decision failed to offer a significant boost to equities, however. Markets have been roiled by growing concerns about the global tech sector which had seemed relatively immune to trade tensions between the United States, and

But lacklustre earnings from and have triggered losses across the tech sector with Wall Street's tech index shedding 6 percent in the past three sessions.

That pushed world stocks to one-week lows and even Japan's Nikkei failed to hold on to earlier BOJ-fuelled gains, ending the day flat. MSCI's index of tech shares fell almost one percent.

European tech followed suit, losing 0.4 percent and lagging broader equities that started the day flat.

Wall Street was set for a modestly firmer open, futures signalled.

The tech retreat has overshadowed a generally buoyant U.S. earnings season, with average 22.6 percent profit growth and 83 percent of companies beating consensus estimates so far. That included Caterpillar, seen as a bellwether of global economic growth.

Milligan attributed the setback to a re-assessment of share prices and summer profit-taking rather than a fundamental loss of confidence in the sector. World stocks are still set to end July with the best monthly returns since January, despite trade tensions, growth fears and tech selling, he noted.

"The market is saying 'you are fairly valued around these prices so let's wait for the next big story'. That will either be on the downside with trade tensions in autumn or it could positive if Chinese stimulus turns out to be greater than expected," Milligan added.

He was referring to Beijing's announcements, offering more fiscal stimulus to counter the effect of U.S. trade tariffs and incentives for banks to lend to small business.

Markets now await Wednesday's Fed policy statement to see if the expected two rate hikes for the remainder of 2018 can be cemented in. In Britain, a 25 basis-point hike is now widely expected on Thursday, despite economic weakness linked to Britain's looming exit.

The British pound has already priced the move, David Riley, at BlueBay Asset Management, said, adding: "I think they will do it but it will be one and done."

The pound firmed 0.2 percent to around $1.3156, having drifted off 10-month troughs of $1.2955 touched earlier in July.

(Additional reporting by in Sydney; Editing by Jon Boyle)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Tue, July 31 2018. 14:39 IST