World mar­kets on alert mode

Spot­light on Fed min­utes

The Star Early Edition - - INTERNATIONAL - Patrick Gra­ham

STOCK mar­kets rode out the lat­est rise in ten­sions around North Korea yes­ter­day, main mar­kets in both Europe and Asia inch­ing higher as at­ten­tion moved to min­utes from the US Fed­eral Re­serve’s last meet­ing.

MSCI’s broad­est in­dex of Asia-Pa­cific shares out­side Ja­pan rose 0.3 per­cent, re­gain­ing half the losses it saw on Tues­day when North Korea fired a missile into Ja­panese wa­ters.

The or­gan­i­sa­tion’s global shares in­dex gained 0.1 per­cent, helped by early gains for most of Europe’s ma­jor mar­kets.

A shift to­wards more hawk­ish lan­guage by sev­eral ma­jor cen­tral banks has dom­i­nated the past week and left mar­kets un­sure of how much longer emer­gency stim­u­lus in Europe will con­tinue to sup­port global as­set prices.

For now in­vestors seem to be giv­ing pol­i­cy­mak­ers the ben­e­fit of the doubt that the global econ­omy can take any tight­en­ing of mon­e­tary pol­icy, al­though the lat­est data yes­ter­day was mixed – it was strong in Europe and weaker in China.

The Fed min­utes will be searched by in­vestors for any signs of more con­cern among the pol­i­cy­mak­ers about a down­turn in in­fla­tion and ac­tiv­ity in the US.

“North Korea has rat­tled mar­kets, but cen­tral bankers are more im­por­tant,” said Kath­leen Brooks, re­search di­rec­tor at City In­dex in Lon­don.

“While North Korea’s mil­i­tary am­bi­tions are a back­ground threat for mar­kets, we don’t think that this par­tic­u­lar geopo­lit­i­cal event is at the stage yet where it will cause a spike in volatil­ity.”

South Korea’s main in­dex re­bounded by 0.36 per­cent and Ja­pan’s Nikkei ended up 0.25 per­cent.

Shang­hai stocks rose more than 1 per­cent, de­spite a drop in the Caixin/Markit ser­vices pur­chas­ing man­agers’ in­dex (PMI) to 51.6 points in June, from 52.8 points in May.

IHS Markit’s fi­nal com­pos­ite PMI for the euro zone was 56.3 points in June, down from May, but com­fort­ably beat­ing a flash es­ti­mate, chalk­ing up the best per­for­mance last quar­ter in more than six years.

Cur­rency mar­kets were in limbo, the euro trad­ing just over half a cent be­low last week’s 14-month highs against the dol­lar.

Money-print­ing

The dol­lar and yen were the main vic­tims of the shift in lan­guage last week, but many an­a­lysts won­der whether the Euro­pean Cen­tral Bank (ECB) will be able to rein in money-print­ing later this year if the euro keeps gain­ing.

“I meet a lot of peo­ple while I talk to clients who think the ECB sim­ply won’t be able to es­cape its cur­rent pol­icy set­ting, be­cause a stronger cur­rency is too dam­ag­ing,” said So­ciété Générale strate­gist Kit Juckes.

“The thought the ECB will re­sist pres­sure… is still lead­ing many… to look for cheaper lev­els to buy euro.”

The dol­lar was less than 0.1 per­cent higher against the bas­ket of cur­ren­cies used to mea­sure its broader strength and 0.1 per­cent lower at $1.1353 per euro. – Reuters

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