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Business News/ Market / Stock-market-news/  Global stocks extend rally, dollar drops as faith in Fed builds
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Global stocks extend rally, dollar drops as faith in Fed builds

MSCI All-Country World Index advances 0.5%, Stoxx Europe 600 Index climbs 0.7%

Photo: BloombergPremium
Photo: Bloomberg

London: Maybe the Federal Reserve can pull it off after all—at least that’s what markets are suggesting.

Global equities headed for a fourth day of gains, Treasuries rose and the dollar fell against most major peers as investors showed few signs of unease after the US central bank signaled it was likely to raise interest rates next month and take a cautious approach to subsequent tightening. Gold held near a five-year low and credit markets strengthened, while European stocks rose to a three-month high, rallying with emerging markets.

Emerging markets have tumbled this year and global equities have swung between gains and losses on concern the global economy wouldn’t be strong enough to withstand the first US rate increase since 2006. Now investors are gaining confidence: economic reports since the Fed’s October meeting have been encouraging, with payrolls logging the biggest gain this year and unemployment falling to 5%. They’re pricing in a 68% probability that policy makers will move in December, according to futures data compiled by Bloomberg.

“The market has grown comfortable with the idea of a dovish hike," said Mark Dowding, a London-based money manager at BlueBay Asset Management LLP which has $60 billion under management. “The market has sent out the message that they are comfortable with the idea of a gradual approach to policy tightening, and the Fed is endorsing that view and communicating to the market they are going to give it what it wants."

Stocks

The MSCI All-Country World Index advanced 0.5% at 8:56 am New York time. The Stoxx Europe 600 Index climbed 0.7% and touched the highest since 19 August. Standard & Poor’s 500 Index futures rose 0.1%.

Raw-materials companies led the gains, with Glencore Plc up 0.9% and BHP Billiton Ltd. 1.5% higher. ThyssenKrupp AG rose 2% after the German steelmaker posted an increase in profit and proposed to boost its full-year dividend. Royal Mail Plc advanced 4.4% after reporting earnings that beat analysts’ estimates. Johnson Matthey Plc rallied 8.6% after the British company that makes catalysts for cars and methanol plants said it will give a special dividend.

European carmakers were among those leading the advance, with the DAX one of the biggest gainers in western-European markets.

S&P 500 E-mini futures expiring in December are rising after the index climbed the most in almost a month on Wednesday. Data Thursday showed initial jobless claims in the US were around four-decade lows last week.

An index of leading economic indicators for October rose, according to economists surveyed by Bloomberg before the report.

Currencies

The Bloomberg Dollar Spot Index, which tracks the US currency versus 10 major counterparts, fell 0.3%, halting a four-day advance. The greenback slid most against the currencies of Malaysia, South Korea and Australia. It declined 0.2% to $1.0676 per euro.

“The market’s been reassured that when the Fed does start to raise rates—which looks likely to be in December—subsequent pace of tightening will be very gradual," said Lee Hardman, a London-based currency strategist at Bank of Tokyo- Mitsubishi UFJ Ltd. “That, at least temporarily, has weighed modestly on the dollar."

The yen gained 0.4% to 123.18 per dollar after the central bank left monetary policy unchanged and said “inflation expectations appear to be rising."

Governor Haruhiko Kuroda, who unleashed unprecedented monetary stimulus at the Bank of Japan in 2013 and doubled down on it last year, is done expanding his efforts, according to an increasing number of economists. Forty-six percent of respondents in a 13-17 November Bloomberg poll didn’t expect the BOJ to boost its current pace of asset purchases in coming months—up from 33% in October. All 41 economists predicted no change at the policy meeting on Thursday.

Japan’s Topix index added 0.9% and the yield on two- year Japanese government bonds fell to a 10-month low of minus 0.02%.

Emerging markets

The MSCI Emerging Markets Index rallied 1.5%, heading toward the biggest weekly gain since the period ended 9 October Equity gauges in South Korea, India and South Africa jumped more than 1%.

The Hang Seng China Enterprises Index and the Shanghai Composite Index both jumped 1.4%. India’s benchmark rebounded from a two-month low.

Malaysia’s ringgit led currencies higher, increasing 1%, and South Korea’s won strengthened 0.9%. Both climbed the most since October.

South Africa’s rand declined as the central bank increased its benchmark interest rate for the second time this year, positioning itself ahead of possible currency turmoil if the Fed tightens policy next month. Of the 26 economists surveyed by Bloomberg, 10 predicted the increase.

Commodities

Zinc and Nickel dropped to the lowest since at least 2009 on concern that demand is sputtering in China. Gold was little changed near a five-year low amid speculation that investors have already factored in the likelihood that the Fed will raise rates next month. Silver slipped 0.2%, extending a 15-day losing run.

Oil touched the lowest level in almost three months. Futures declined 1.5% to $40.14 a barrel in New York. They fell below $40 for the first time since August on Wednesday.

Bonds

Benchmark 10-year Treasury yields slipped two basis points to 2.26%, after ending Wednesday little changed. Germany’s 10-year bund yield also fell two basis points, to 0.49%, having declined for the past eight days. Portugal’s 10- year yield dropped five basis points to 2.42%.

The cost of insuring corporate debt fell for a third day. The Markit iTraxx Europe Index of credit-default swaps on investment-grade companies dropped one basis point to 70 basis points. The non-investment grade Markit iTraxx Europe Crossover Index declined two basis points to 293 basis points. Bloomberg

--With assistance from Adam Haigh, Cecile Vannucci, Stephen Kirkland, Neil Denslow, Anchalee Worrachate and Anooja Debnath.

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Published: 19 Nov 2015, 08:25 PM IST
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