Global stocks top 2016 gains, dollar up before Fed minutes

February 22, 2017 08:43 AM

Global stocks hit record highs on Wednesday, topping 2016's gains just two months into 2017, while the dollar rose before Federal Reserve minutes that will be scoured for clues about the next U.S. interest rate rise.

MSCI's main index of global stocks, which tracks share prices across 46 countries, hit a second successive record high. It has risen some 5.7 % so far this year, beating the 5.6 % gains of 2016.

However, the financial market looked set to open lower, index futures suggested, and European shares edged lower after failing to maintain early gains.

The pan-European STOXX 600 index dipped 0.1 % on Wednesday, led lower by miners as metals prices fell. Heavyweights Anglo American and BHP Billiton lost 3.6 and 2.6 % respectively.

On the plus side, Britain's Lloyds Banking Group was up 3.8 % after reporting its highest full-year profit in a decade.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.6 %. Hong Kong's Hang Seng rose 1 % but Japan's Nikkei. bucked the trend, closing marginally lower as the yen strengthened.

Relatively strong earnings seasons in Europe and the United States, forecast-beating economic data and U.S. President Donald Trump's promises of tax reform, less regulation and more infrastructure spending have all helped lift stocks this year.

All three main U.S. indexes hit record closing highs on Tuesday.

The day's most anticipated event for markets will be the release of the minutes of the Fed's last policy meeting.

Fed Chair Janet Yellen said last week it was likely the central bank would need to raise rates at an upcoming meeting. Markets have priced in only a slim chance of a rise next month but a much greater likelihood by June.

The dollar rose 0.3 % against a basket of major currencies and 0.3 % versus the euro.

The single currency has suffered recently on investor worries about European politics, particularly in France where anti-euro, far-right party leader Marine Le Pen leads polls before presidential elections in April and May.

"This is politics as well as markets increasingly betting on an imminent rate hike by the Fed," said Commerzbank strategist Thu Lan Nguyen. "Volatility is rising as investors start to prepare for the elections."

Sterling dipped 0.3 % to $1.2435 after revised data showed the UK economy grew at its fastest pace in a year in the last three months of 2016 but by less than previously estimated for the whole of 2016.

The pound rose 0.1 % to 84.4 pence per euro. Euro/sterling closed below its 200-day moving average, a long-term gauge watched closely by fund managers, on Tuesday for the first time since December 2015.

The yen rose 0.5 % to 113.12 per dollar.

Gap widens
European politics and the prospect of higher U.S. rates pushed the gap between short-dated U.S. and German government bond yields to its widest in nearly 17 years.

German two-year yields hit a record low of minus 0.91 % while U.S. equivalents touched 1.24 %.

Analysts said jitters over the French vote have stoked demand for top-quality debt. Bottlenecks caused by the European Central Bank's bond-buying program and upcoming regulatory changes have amplified the decline the yields.

"There are a host of special factors driving two-year German bond yields lower and on the other side of the Atlantic we have the Fed contemplating another hike, which is driving up U.S. equivalents," ING strategist Martin van Vliet said.

German 10-year yields fell 5 basis points to 0.26 %, their lowest in more than a month.

Oil prices dipped as the dollar rose but held near their multi-week high. Brent crude, the international benchmark, traded at $56.37 a barrel, down 29 cents.

Copper also fell, as traders reduced their positions before the Fed minutes, though supply disruptions supported prices. The metal last traded at $6,030 a tonne, down 0.5 % on the day. Nickel, zinc, aluminum and tin also fell.

Gold edged up 0.1 % to $1,237 an ounce.

About the Author

Nigel Stephenson, Reuters