Stocks near highs, dollar drifts after Fed see hike 'fairly soon'

February 23, 2017 08:44 AM

World stocks held near record highs on Thursday and the dollar scuttled sideways after minutes of the latest U.S. Federal Reserve meeting showed policymakers in no rush to raise interest rates.

Treasury and euro zone government bond yields fell or held steady too as ECB policymakers also signaled they weren't getting carried away by signs the euro zone economy is gathering strength.

A U.S. rate hike next month remains a slim prospect, with futures pricing in only an 18 % chance, according to the CME Group's FedWatch tool, and the financial market, like the dollar, looked set for a subdued session.

The pan-European STOXX 600 stocks index was treading water close to 14-month highs touched on Tuesday. A 4 % fall in miner Rio Tinto and a fall of nearly 5 % in EasyJet, which were among companies whose shares went ex-dividend, weighed on the index.

Miners bored lower too as industrial metals like copper and nickel fell in the commodities market in contrast to a near $1 dollar or 1.75 % rise in oil prices.

"The growth pattern (in Europe) is still very much conditional on a substantial degree of (ECB) accommodation," the euro zone central bank's chief economist Peter Praet said in London. "These economies are still fundamentally fragile, so 'no complacency' is the main message."

MSCI's broadest index of Asia-Pacific shares outside Japan had edged up 0.2 %, having hit its highest level since July 2015 at one point during the day.

MSCI's 46-country All World index also nudged higher and was within half a point of Wednesday's record high.

The Fed minutes overnight showed many policymakers believed it may be appropriate to raise rates "fairly soon" if jobs and inflation data met expectations. But they also highlighted deep uncertainty over President Donald Trump's economic program.

That helped support many economists and traders' view that the Fed will make the move in June or May at the earliest.

The dollar dallied, with an early prod higher failing to hold and turning into a 0.1 % dip against a basket of major currencies for the second day running.

The euro, which has been buffeted by investor nerves over France's presidential election, to be held in April and May, bobbed up to $1.0573. The yen also made ground to 112.75 per dollar.

Sterling's recent rally versus the euro continued despite more warnings that Scotland may be gearing up for another independence referendum. It also briefly climbed back above $1.25 against the dollar.

Tax talk
U.S. Treasury Secretary Steven Mnuchin went on another busy round of media interviews. He said he wants to see "very significant" tax reform passed before Congress' August recess and that the Trump administration was looking closely at border tax issues.

Along with Trump's policies on taxes, spending and trade, markets have been trying to gauge his attitude to the dollar.

He said before his inauguration that the dollar's strength against the Chinese yuan was "killing us", raising concern in the "strong dollar" policy espoused by recent U.S. administrations could change.

Mnuchin had praised the strong dollar on Wednesday, however, telling the the financial market Journal it reflected confidence in the economy.

Yields on 10-year U.S. Treasury bonds held steady at 2.415 %, having fallen after the minutes.

German equivalents, the benchmark for euro zone borrowing, edged up 1 basis point to 0.28 %, having closed on Wednesday at 0.27 %.

French 10-year yields fell 6 bps, reducing the premium investors demand to hold French rather than German debt, as the emergence of a centrist pact eased concerns over the upcoming election.

Influential centrist Francois Bayrou said on Wednesday he would not stand in the election but would support young gun Emmanuel Macron, a move that is seen boosting Macron's chances.

A new poll showed far-right, anti-euro party leader Marine Le Pen increasing her first-round lead, although she is still expected to lose in the run-off..

"Yesterday's developments in France were positive for French bonds and broader risk appetite," said Orlando Green, European fixed income strategist at Credit Agricole in London.

Oil prices rose 1.75 % after data showed a decline in U.S. crude stockpiles as imports fell. Brent crude last traded at $56.56, up 72 cents a barrel.

Prices have been rising since the Organisation of Petroleum Exporting Countries and other oil producers agreed output cuts last year.

"It's a battle between how quick OPEC can cut without shale catching up," said Tony Nunan, oil risk manager at Mitsubishi Corp in Tokyo.

Metals buckled, though. Copper fell almost 1 % to $5,982 a tonne on concern about fresh regulation that could affect China's property boom.

Gold rose less than 0.1 % to $1,238 an ounce, supported by uncertainty over the Fed rate outlook. Zinc and nickel also fell more than 1 %.

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