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Wall Street steady as crude prices rise

Friday 13:30 GMT

What you need to know
● Dollar index nudges up after hitting five-week low
● Short term US bond yields inch higher
● Global stocks at record as Wall St gains ground
● Oil prices firmer after volatile week
● Gold advances towards $1,230 an ounce
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Hot topic

Has the buck bounce run its course? The dollar index (DXY) — a measure of the greenback against a basket of currencies — is barely changed at 100.36, but earlier in the day touched 100.14, its lowest in five weeks.

The DXY hit a 14-year high of 103.82 at the start of 2017, as traders made bets that the proposed Trump policies of tax cuts and infrastructure spending would lift the US economy and cause the Federal Reserve to raise interest rates at a faster pace.

Following some better US economic data — including last week’s sturdy jobs report — the Fed this week did indeed increase borrowing costs.

But investors have inferred from the central bank’s accompanying commentary that it would continue to be very cautious in normalising monetary policy unless it saw evidence that the mooted Trump plans were causing growth to accelerate markedly.

And there are signs that even though the Trump presidency is only a few months old, optimism among investors is starting to fade that the administration will be able quickly to deliver its stimulus boost — particularly if it continues to expend energy on non-economic issues such as immigration, as well as spats with the media and security services.

The euro has a weighting of about 58 per cent in the DXY and the common currency’s recent rally is an important factor behind the buck’s trade-weighted weakness.

The euro is down 0.2 per cent to $1.0739 on Friday, but it rose sharply midweek and hovers close to a six-week high. Analysts at Citi note the currency received a boost from comments on Thursday from European Central Bank member Ewald Nowotny, in which he said deposit rates could be raised before the main refinancing rate.

The dollar is mixed against other peers, down 0.2 per cent to ¥113.12 but adding 0.1 per cent to $1.2351 per pound.

Derek Halpenny, strategist at MUFG, said his answer to the question of whether the dollar’s bull run is over is: “No, but the window is closing”.

“Our current forecasts imply continued dollar strength before dollar appreciation reverses in the second half of the year as key central banks outside of the US begin to follow the tightening course the Federal Reserve is now clearly on,” he said.

“A Q2 EUR/USD forecast of 1.0500 now looks more realistic than our [previous] forecast of parity”.

Equities

The S&P 500 is adding 0.1 per cent to 2,383.4 as trading gets under way in New York, leaving the Wall Street barometer only about 0.5 per cent shy of its record close.

The pan-European Stoxx 600 is up 0.2 per cent, while London’s FTSE 100 is gaining 0.4 per cent and in line to end the week at another record as banks and housebuilders do well, counteracting selective profit-taking in miners after their recent strong run.

Japan’s Topix index fell 0.4 per cent and in China the Shanghai Composite shed 1 per cent, giving back all of the previous day’s advance.

In Hong Kong, the benchmark Hang Seng index was up 0.1 per cent as falls in consumer discretionary stocks were offset by a rally in telecoms.

Together, the bourses have helped push the FTSE All-World index to 298.74, on course to close the week at a record level as global investors welcome the more optimistic noises emanating from central banks.

Fixed income

And expectations that monetary guardians thus are minded to be less accommodative in coming months are hobbling sovereign bonds, ensuring yields don’t fall too far.

The highly policy sensitive US 2-year yield is up 1 basis point to 1.32 per cent, though longer term paper sees yields a touch softer, with 10-years off 1bp to 2.52 per cent.

Benchmark 10-year German Bund yields are adding 1bp to 0.45 per cent.

The move leaves Bund yields within several basis points of the 14-month high touched earlier this week as some investors reduce their holdings of “haven” German paper as they become more relaxed about the eurozone’s political profile following the Dutch election.

Commodities

Oil prices are firmer at the end of a week that saw bouts of heightened volatility as traders absorbed conflicting reports about production and inventory levels.

Brent crude, the international benchmark which on Tuesday fell to a three-and-a-half-month low of $50.25 per barrel, is up 0.6 per cent to $52.06, while US marker West Texas Intermediate is gaining 0.6 per cent to $49.06.

A sharp two-day rally in gold, that followed the more dovish than expected Fed commentary, appears to be fading, with the yellow metal up just 0.2 per cent to $1,229 per ounce.

Additional reporting by Hudson Lockett in Hong Kong

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