Market Review for October 12 ,2017

Asian stocks reached a 10-year high on Thursday, riding the bull run in global equity markets, while the dollar sagged after the Federal Reserve showed a more guarded view towards inflation.

Experts expected a mixed start for European stocks, forecasting Britain’s FTSE to open down 0.05 percent, Germany’s DAX to start 0.03 percent higher France’s CAC to open flat.

Japan’s Nikkei was up 0.4 percent after brushing 20,994.40, it’s highest since November 1996 and Hong Kong’s Hang Seng scaled a decade-high.

 Asia took cues from Wall Street, where major indexes rose to yet another set of record closing highs overnight following a report that a market-friendly candidate was being pushed as successor to Janet Yellen at the helm of the Fed.

Global equities now appear to be taking geopolitical developments such as the secessionist push in Spain and tensions on the Korean peninsula in their stride, to reach those record tops.

In the currency market, the dollar hit a two-week low versus a basket of currencies on Thursday after minutes from the U.S. Federal Reserve’s latest meeting suggested some central bankers are still concerned about persistently low inflation.

The dollar index, which measures the greenback’s value against a basket of six major currencies, touched 92.827, its lowest level since Sept. 26. It was last down 0.2 percent at 92.854.

The Fed minutes on Wednesday showed many policymakers still felt that another rate increase this year “was likely to be warranted” but several noted that additional tightening was dependent on upcoming inflation data.

“Many participants expressed concern that the low inflation readings this year might reflect... the influence of developments that could prove more persistent, and it was noted that some patience in removing policy accommodation while assessing trends in inflation was warranted,” the Fed said in its minutes.

The dollar index against a basket of six major currencies slipped to a two-week low of 92.821 following the release of the minutes from the Fed’s last policy meeting on Sept. 19-20.

Fed policymakers had a prolonged debate about the prospects of a pickup in inflation and the path of future interest rate rises if it did not, the minutes showed.

While this did little to cool expectations for the Fed to raise interest rates in December, it did make the central bank appear slightly less hawkish than it seemed right after the September policy meeting when it signaled the year-end monetary tightening.

The dollar was particularly weak against the euro as relief over Catalonia stopping short of a formal declaration of independence supported the common currency.

The euro rose to $1.1879, its highest since Sept. 25 and on track for a fifth straight day of gains.

The dollar was little changed at 112.360 yen, having bounced back from a two-week trough below 112.000 plumbed earlier this week.

 The U.S. currency was seen to have found support after a media survey showed that Japanese Prime Minister Shinzo Abe’s ruling party could come close to keeping its two-thirds “super” majority in an Oct. 22 lower house election.

In the meantime the Canadian dollar gained against the broadly weaker dollar. It extended overnight gains to reach C$1.2440 per dollar, its strongest in two weeks.

Britain’s pound steadied on Wednesday, holding just above a one-month low hit as investors grew concerned on whether entrenched expectations of higher UK interest rates were reasonable given a backdrop of uncertain Brexit negotiations.

Noises around Brexit negotiations grew louder after finance minister Philip Hammond declared the government was planning for all possibilities, including Britain’s leaving with no agreement on the terms of its departure.

However, that had little impact on sterling with the currency hemmed in tight trading ranges as investors worried that a sharp turnaround in sterling in the currency markets to net long positions may come under pressure.

Sterling GBP=D3 was broadly flat at $1.3195 after two sessions of gains. It briefly hit a day's low of $1.3176 after Hammond's comments.

Strategists said the speech had only minimal impact with markets more focused on the strong data this week and broad expectations of interest rate hikes baked into the currency markets.

Despite falling projections for British economic growth, futures markets are pricing in 50 basis points of Bank of England rate increases over the next year IRPR, the most in the developed world apart from Canada.

But the outlook appeared fragile, with some market watchers including such as Morgan Stanley preferring to sell sterling on rallies on Brexit worries.

In commodities, oil prices eased as U.S. fuel inventories rose despite efforts by OPEC to cut production and tighten the market.

Brent crude futures were down 0.55 percent at $56.63 per barrel and poised to end a three-day winning streak.

Oil prices eased on Thursday as U.S. fuel inventories rose despite efforts by OPEC to cut production and tighten the market.

A pump jack is seen at sunrise near Bakersfield, California October 14, 2014. REUTERS/Lucy Nicholson/File Photo

U.S. West Texas Intermediate (WTI) crude futures were trading at $50.98 per barrel at 0647 GMT, down 32 cents, or 0.6 percent, from their last settlement.

Brent crude futures, the international benchmark for oil prices, were at $56.58, down 36 cents, or 0.6 percent, from the previous close.

Starting this year, the Organization of the Petroleum Exporting Countries (OPEC) and other producers including Russia agreed to cut output by 1.8 million barrels per day (bpd) to prop up prices.

 The OPEC-led deal helped lift oil from the $30 to $40 per barrel range in late 2016/early 2017. But traders say supplies remain ample despite these cuts, thanks in large part to surging U.S. production.

As a result, OPEC is widely expected to extend the cuts beyond the current expiry date of end-March 2018.

With ongoing OPEC-led supply cuts supporting prices, but rising U.S. production capping crude, Maher said that markets would likely be balanced in 2018 and 2019, with Brent range-bound in the $50 to $60 per barrel range.

Spot gold edged up to a 15-day high of $1,295.45 an ounce, supported by a weaker dollar.

 View our full economic calendar for a daily roundup of major economic events.

 

 

 


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