LONDON (Reuters) – World stocks held near two-week highs on Wednesday as investors bet on a worldwide wave of central bank stimulus, with expectations growing that the United States and the euro zone may deliver interest rate cuts as early as July.

Markets have been fired up by European Central Bank President Mario Draghi’s Tuesday volte-face on policy easing. In one of the biggest policy reversals of his eight-year tenure, Draghi flagged more easing if inflation failed to pick up.

But some caution seeped in after the previous day’s frenzy.

German and U.S. bond yields, which hit record lows and two-year lows respectively after Draghi’s comments, inched around three basis points higher on the day.

European shares slipped off six-week highs and Wall Street futures indicated a slightly weaker opening on Wednesday.

Some of the trepidation is down to the U.S. Federal Reserve’s meeting, the decision of which is due at 1800 GMT. It is widely expected to follow the lead of the European Central Bank and open the door to future rate cuts.

Investors called it a monetary policy turning point.

“We see now that central banks will try assertively to generate inflation so this would reinforce our positivity on risk assets overall,” said Justin Onuekwusi, portfolio manager at Legal & General Investment Management.

Market sentiment has been buoyed also by news that Trump will meet Chinese leader Xi Jinping at the G20 summit this month, even though many doubt the two men can reach a breakthrough on ending their trade dispute.

MSCI’s global equity index rose 0.4%, adding to Tuesday’s 1% gain, as Asian shares excluding Japan followed the lead of their European and U.S. counterparts to jump almost 2% — their biggest one-day rally since January.

Tokyo and Shanghai too climbed almost 2% while Australia’s main bourse hit an 11-year high. New York’s S&P500 jumped almost 1% on Tuesday to approach recent record highs.

(Graphic: S&P500 approaches record high – tmsnrt.rs/2Y7dDQE)

All eyes are now on the Fed, with Chairman Jerome Powell holding a news conference after the announcement.

Futures are almost fully priced for a quarter-point easing in July and imply more than 60 basis points of cuts by Christmas.

As for Europe, markets have almost fully priced a cut in September, though some analysts, such as those at Germany’s Commerzbank, now say rates will be cut in July, rather than in the last quarter of the year as they had predicted earlier.

ECB sources told Reuters Draghi had flagged his measures so strongly that other board members would be unable to disagree with him at their July 25 meeting.

Yet all the clamor for easing creates risks that policymakers will disappoint.

“Market expectations for a dovish shift are nearly universal, the only question seems to be the degree,” said Blake Gwinn, head of front-end rates at NatWest Markets, referring to the Fed.

“Markets will be looking for validation of this pricing,” he added. “We think this represents a fairly high bar for the Fed to deliver a dovish surprise.”

SUB-ZERO YIELDS

BofA Merrill Lynch’s latest fund manager survey spoke volumes about the sea change in sentiment. It showed investors were dumping stocks and had upped bond allocations to nearly eight-year highs. They also had crowded into safe-haven U.S. Treasury bonds and cash.

The prospect of more policy easing and worries for the growth outlook have sent global bond yields tumbling this year.

German yields were around minus 0.28%, having come off the minus 0.33% record low hit on Tuesday. Japanese yields sank to the lowest since August 2016 at -0.145%.

(Graphic: Multiverse bond index – tmsnrt.rs/2Y0uHbg)

Yields on the U.S. 10-year note were around 2.08%, after rea

ching their lowest since September 2017 at 2.016%. This is down some 60 bps since January and a world away from the 3.25% touched last November.

The fallout in currencies has been significantly less, mostly because it is hard for one to gain when all the major central banks are under pressure to ease.

The euro did pull back after Draghi’s comments, but at $1.118 it touched only a two-week low. The dollar eased 0.10% versus a basket of currencies

In commodities, the rate-cut buzz kept gold just off 14-month highs at $1,345.16 per ounce. Brent crude futures however slipped 0.6% to $61.75 a barrel, pressured by economic growth worries.

(Graphic: German, US bond yields in sharp falls this year – tmsnrt.rs/2Y7buo4)