World markets climb on Fed uncertainty
World stocks forged higher yesterday on uncertainty over the future path for US interest rate hikes, while London shrugged off news of surging inflation. Asian indices advanced as investors weighed the prospect of a US rate increase, and on the eve of key economic growth data in powerhouse economy China.
In Europe, the FTSE 100 index of leading British shares was up 1 percent at 7,018 while Germany’s DAX rose 1.2 percent at 10,632. The CAC-40 in France was 1.3 percent higher at 4,507. US stocks were poised for a solid opening, with Dow futures and the broader S&P 500 futures up 0.5 percent.
There are a number of events over the rest of the week that could impinge on investor sentiment. Particularly interesting to traders will be third-quarter growth data out of China today. Worries over the Chinese economy have surfaced on several occasions this year to keep sentiment in check. Annual growth is expected to be steady at 6.7 percent. Anything substantially below that could prompt some jitters and be reflected across financial assets.
“Markets appear optimistic going into risk events including tonight’s China GDP growth update, today’s final Trump vs Clinton debate and tomorrow’s ECB policy decision,” said Mike van Dulken, head of research at Accendo Markets.
The main focus of attention later in the day will be the release of US inflation data for September. The consensus in the markets is that the headline rate edged higher to 1.5 percent, while the core rate, which strips out volatile items such as food and energy, held steady at 2.3 percent. The dollar’s near-term fortunes could hinge on whether those numbers are higher or lower than anticipated. A higher number will likely cement expectations that the Federal Reserve will raise interest rates again this year, and that could give the dollar a boost. Anything lower could have the opposite effect.
In Europe, Frankfurt, London and Paris equities also pushed higher, as the faltering dollar lifted the energy and mining sectors, dealers said. “Equities are pointing north again today, buoyed by Fed rate hike uncertainty taking the dollar from its highs,” said Mike van Dulken, head of research at trading firm Accendo Markets.
“This, along with... UK inflation data, is helping materials prices-notably Brent crude oil holding above $51 — and thus energy/miners,” he said. British annual inflation surged to a near two-year high of 1.0 percent in September, official data showed yesterday, as a tumbling pound raised prices of imported goods and attracted tourists.
Meanwhile a weaker greenback makes dollar-priced commodities cheaper for buyers using stronger currencies, which boosts demand and prices. In turn, that translates into rising revenues, profits and share prices for the broader resources sector. The gains came amid unease over this week’s key events that also include the last US presidential debate and a European Central Bank monetary policy meeting.
Wall Street pulled back on Monday, despite better-than-expected earnings result from Bank of America. A below-par reading Monday on manufacturing in New York offset news that overall factory production grew for the third time in four months.
While investors globally expect US interest rates will rise by the end of the year, the figures tempered expectations about the pace of rises after December. Fed Vice Chairman Stanley Fischer said interest rates would likely be suppressed by several factors, including weak economic growth at home and abroad and low corporate investment.
The news added to downward pressure on the dollar, which fell against the yen, euro and even the pound in New York. And while it edged back against the yen on Tuesday, it continued to struggle against the euro and pound.
Attention turns to the release Wednesday of Chinese third-quarter economic growth figures, with an AFP survey predicting a slowdown from the previous three months. The figures will be closely watched after last week’s disappointing China trade results were tempered by a better-than-expected inflation reading.
The growth figures will be followed later in the day by the third US debate in a bitter presidential election campaign, while the ECB holds a policy meeting tomorrow.
ECB chief Mario Draghi will be under pressure to clarify the bank’s plans after investors were spooked by talk of an end to its stimulus program.
Asian markets climbed yesterday as mixed readings on the US economy and comments from a top Federal Reserve official raised expectations that US interest rate rises would be gradual.
Regional stock markets rallied on the prospect of rates staying low for longer. Tokyo ended 0.4 percent higher as the dollar pared early losses against the yen. Hong Kong ended 1.6 percent higher and Shanghai closed up 1.4 percent.Sydney gained 0.4 percent and Seoul put on 0.6 percent, while Singapore was up 0.1 percent. Manila surged 2.9 percent, while there were also healthy gains in Taipei and Jakarta. — Agencies