Global stocks stay buoyant as monetary policy focus builds

MILAN - 18 October 2017: World stocks stayed near all-time peaks and the dollar extended a winning streak on Wednesday as the focus on upcoming changes to monetary policies in the U.S. and the euro zone grew.

Talk over the next Federal Reserve Chairman lifted the dollar for a fifth straight day as the MSCI’s 47-country ‘All-World’ index .MIWD00000PUS inched up 0.1 percent by 1242 GMT, staying at striking distance from the record high hit on Monday.

Meanwhile, the Dow Jones Industrial Average .DJI was set to open above 23,000 for the first time following a series of upbeat earnings reports from marquee companies.

The start of China’s Communist Party conference, the extension of talks over the North American Free Trade Agreement and uncertainty over the Catalonia crisis in Spain also gave investors something to chew on without reducing risky appetite.

“We need much more clarity on monetary policy: we have the ECB coming up next and we have some issues with the Fed. That’s where the market focus is going to be,” Peter Rosenstreich, Head of Market Strategy at Swissquote Bank in Geneva said.

In Europe, stocks edged up to near four month highs with a raft of company results in focus while euro zone bond yields rose from five-week lows as investors geared up for a key European Central Bank policy meeting next week. [.EU][GVD/EUR]

Rosenstreich said appetite for risky assets remained intact as the solid growth outlook and low inflation combined in reinforcing expectations that the pace of central bank normalization will be gradual.

“People still see this as a low rate environment and risk appetite continues to drive the market pricing,” he said.

Reuters reported last week that policymakers are broadly in agreement about extending asset purchases at a lower volume, with views converging on a nine-month extension.

Back in Asia, the MSCI’s index of Asia-Pacific shares outside Japan .MIAPJ0000PUS was flat, near its late 2007 peak after China President Xi Jinping kicked off the twice-a-decade party congress with a wide-ranging speech.

Jinping said the market would be allowed to play a decisive role in allocating resources but also said the role of the state in the economy had to be strengthened.

Investors are keen for clear direction on economic and financial market reform over the next five years, but history suggests these events can be light on detail.

China's blue-chip CSI300 index < .CSI300> added 0.8 percent in reaction, while Shanghai stocks .SSEC rose 0.3 percent.

“Market participants are paying much more attention to the party congress this time, as they are watching if any surprise reforms will emerge amid concerns over economic growth,” said Yan Kaiwen, an analyst with China Fortune Securities.

Japan's Nikkei .N225 rose for a 12th consecutive day, nudging up 0.1 percent thanks to hopes that this weekend's election will produce political stability and continuation of loose monetary policy.

An opinion poll by Kyodo showed Japanese Prime Minister Shinzo Abe’s coalition was on track for a roughly two-thirds majority in Sunday’s general election there.

DOLLAR ON WINNING STREAK

In currencies, the dollar edged up for a fifth consecutive day as higher U.S. Treasury yields triggered a squeeze on investors who have been broadly bearish on the greenback in recent weeks.

Speculation that President Donald Trump could chose a more hawkish leader to replace Fed Chair Janet Yellen and slow progress of U.S. tax helped the greenback hit a one-week high in the previous session.

The dollar index .DXY was up 0.2 percent to 93.68, extending a rebound from Friday’s 2 1/2-week low of 92.749. It rose as high as 93.729 on Tuesday.

Interest rates futures <0#FF:> imply around a 90 percent probability of a Fed hike in December FEDWATCH.

The euro was down 0.06 percent at $1.1760 EUR=, still some way above the recent low and major chart support at $1.1667.

Speeches by several policymakers including European Central Bank due on Wednesday were also in focus ahead of next week’s policy meeting although remarks from Draghi at a conference in Frankfurt had limited market impact.

The biggest mover had been Mexico's peso MXN= which boasted its biggest rise in over four months after trade ministers from the United States, Canada and Mexico extended the deadline on a contentious round of talks.
U.S. Trade Representative Robert Lighthizer and Mexican Economy Minister Ildefonso Guajardo said they faced “significant conceptual gaps” in their views and agreed to stretch out the talks in search of solutions.

That however eased fears of a collapse earlier this week.

In commodity markets, talk that the next U.S. Federal Reserve chief may be a policy hawk kept gold pinned down at XAU= $1,278.71 an ounce.

Oil prices were lifted by a fall in U.S. crude inventories and concerns that tensions in the Middle East could disrupt supplies. Brent crude futures LCOc1 were at $58.31, up 0.8 percent from their last close - and almost a third above mid-year levels. [O/R]

Copper prices slipped on profit-taking after the recent rally to three-year highs but expectations of growing demand in top consumer China helped limit losses.