Stocks, commodities rally as dollar falls

Pick-up in global inflation outlook set to slow Fed’s monetary tightening

STOCKS rallied around the world, commodities jumped and the dollar sank on speculation that a pick-up in the global inflation outlook would not tempt the Federal Reserve to quicken monetary tightening.

The MSCI all country world index of equities headed for its biggest advance in almost four weeks as investors parsed earnings reports. The Bloomberg dollar spot index extended Monday’s retreat from a sevenmonth high.

The rand and South Korea’s won led gains in emerging markets. The Bloomberg commodity index rose for a fourth day to the highest in a week, with oil and metals climbing.

“The market has clearly come to a stronger view that they will raise rates in December,” said Adam Cole, the head of global foreign exchange strategy at Royal Bank of Canada in London.

While Fed fund futures indicate the probability of a rate increase by the December meeting has risen to 66 percent, from about 55 percent a month ago, data releases signalled that there was still reason for officials to be cautious.

The Bloomberg US ECO surprise index – which measures whether data has exceeded or fallen short of analysts’ estimates – fell below zero for the first time in two weeks. Stocks The Stoxx Europe 600 index rose 1.1 percent at 10.51am in London. Mining firms led gains as commodity prices advanced.

Standard and Poor’s (S&P) companies in Hong Kong rose 1.9 percent, its biggest advance since August 1. Currencies The Bloomberg dollar spot index declined 0.3 percent.

“The dollar has struggled to gain upside momentum today because of further evidence that the Fed’s tightening cycle will be very gradual,” said Elias Haddad, a senior currency strategist at Commonwealth Bank of Australia.

The pound rose 0.6 percent to $1.2253 (R17.4455) as the Office for National Statistics said the annual inflation rate accelerated to 1 percent last month, from 0.6 percent in August. Emerging markets The Australian dollar strengthened 0.7 percent to a two-week high. The MSCI emerging markets currency index rose 0.4 percent as the rand climbed to a one-week high. The won and Mexican peso strengthened 0.8 percent.

Crude was up 0.9percent at $50.40 a barrel in New York, after slipping 0.8 percent in the last session.

Gold rose 0.5 percent in London trading to $1 262.29 an ounce while silver, platinum and palladium added more than 0.7 percent.

Copper gained 0.6 percent to $4 705 a ton, with all six main industrial metals traded on the London Metal Exchange advancing.

The yield on treasuries due in a decade was little changed at 1.77 percent. Germany’s 10-year bond yield was little changed at 0.059 percent, while that on similar-maturity UK gilts was at 1.13 percent. – Bloomberg