Wednesday 14:30 GMT
Global equities were on track to close at all-time highs as Wall Street hovers near record levels in the wake of comments from Federal Reserve chair Janet Yellen.
And Ms Yellen’s more hawkish than forecast rhetoric has been backed up on Wednesday by stronger than expected US retail sales and inflation data that are pushing up the dollar and bond yields, while leaving gold floundering.
The Fed chair will undertake a second round of testimony in Washington later in the session, but in the meantime the market is continuing to digest her remarks from Tuesday.
The dollar rose and bond yields jumped after Ms Yellen said an improving economic picture kept alive the potential for rate rises, even as she stressed the uncertainties facing the US economy as the new administration planned its mooted fiscal boost.
Indeed, she was deemed to have adopted a more hawkish stance than expected when she stressed that waiting too long to tighten monetary policy could be “unwise” because it may force the central bank to hike borrowing costs at a faster pace in the future.
Data published on Wednesday seemed to support those concerns. US retail sales for January rose 0.4 per cent month on month, against analyst expectations for a 0.1 per cent gain. And consumer prices jumped 0.6 per cent last month and are up 2.5 per cent over the year, versus forecasts of 0.3 per cent and 2.4 per cent respectively.
The bond market moves have put pressure on interest rate-sensitive assets such as shares of utility companies, but financial stocks have been lifted as traders also continue to hope for a lighter regulatory regime under the Trump administration.
“The strength of the signal from Chair Yellen was not sufficient to upset ongoing resilience in risk appetite,” said Todd Elmer, strategist at CitiFX.
Ian Williams, strategist at Peel Hunt, said the positive reaction by stocks shows that “central bank policy support is no longer the main driver of equity market performance”.
Indeed, US stocks hit new records, with the S&P 500 closing Tuesday’s session at 2,337.6 and it is barely changed shortly after the open of the new session.
Wall Street’s fresh peak is helping support the global bull run, which was given extra propulsion by hopes President Donald Trump’s policies would boost US growth.
The FTSE All-World index, which contains 3,076 worldwide members and has a market capitalisation of $49tn, is up 0.3 per cent to 292.40, surpassing the record close of 292.06 touched in May 2015 — but still just short of the intraday peak of 292.79.
The All-World has risen 7.4 per cent in dollar terms since Mr Trump’s election, with the industrial metals sector surging 23 per cent, banks up 16.3 per cent and miners 14.9 per cent higher, according to Bloomberg.
US stocks have a 51.7 per cent weighting in the All-World, and financials have the greatest sectoral heft, making up 19.4 per cent of the index, followed by the information technology sector — powered by Apple’s share price this week hitting a record — on a weighting of 15.5 per cent.
The pan-European Stoxx 600 index is gaining 0.2 per cent to its best level since December 2015 and the FTSE Asia Pacific index rose 0.8 per cent to close the session at a 19-month high.
In Tokyo the Topix index gained 1 per cent, even as Toshiba tumbled as investors reacted to Tuesday’s delayed after-market earnings announcement revealing a $6.3bn writedown at its nuclear business and plans to potentially sell off the valuable key Nand memory chip business entirely.
Australia’s S&P/ASX 200 rose 0.9 per cent, while Hong Kong’s Hang Seng index advanced 1.2 per cent. In South Korea the Kospi Composite was up 0.5 per cent, though Samsung struggled on news that prosecutors have made a second request for an arrest warrant for the conglomerate’s heir apparent, Lee Jae-yong.
Action on the Chinese mainland was more subdued, with the Shanghai Composite off 0.2 per cent and the tech-heavy Shenzhen Composite retreating 0.9 per cent as profit-takers moved in after a recent strong run.
The dollar index, which measures the US currency against a basket of peers, is up 0.2 per cent to 101.48, near its best level since January 20 following Fed chair Yellen’s comments.
“The market will have to price in a higher risk of an earlier rate hike in the coming months, offering more support for the US dollar,” said Lee Hardman, currency analyst at MUFG.
The euro is easing 0.2 per cent to $1.0557 and sterling is off 0.4 per cent to $1.2424 after jobs data showed slower UK wage growth at the end of last year.
The Japanese yen, which tends to weaken when the broader market mood is upbeat, is 0.3 per cent softer at ¥114.62 per dollar.
Bond markets also are still absorbing Ms Yellen’s comments, and the day’s fresh data. The yield on 10-year US Treasuries is up 4 basis points at 2.51 per cent after rising 3bp on Tuesday. Bond yields move inversely to price.
The more policy-sensitive US 2-year yield is up 2bp to 1.25 per cent as futures markets price in a 40 per cent probability of a Fed rate hike next month, up from 30 per cent earlier in the week.
Ten-year German Bund yields are 2bp firmer at 0.38 per cent and equivalent maturity UK gilts are bucking the trend after the disappointing jobs data, off 1bp to 1.30 per cent.
Brent crude, the international oil benchmark, is down 0.1 per cent to $55.89 a barrel and West Texas Intermediate, the US marker, is off 0.1 per cent to $53.16 ahead of US inventory data due later on Wednesday.
Gold tends to struggle when the dollar and bond yields rise and so the precious metal is slipping 0.3 per cent to $1,225 per ounce.
Additional reporting by Hudson Lockett in Hong Kong
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