The dollar hit a four-month high against the yen and the world’s top bonds and emerging market currencies were back under pressure yesterday, on bets for higher interest rates in a small but growing group of major economies.
With the expectations fuelled by increasingly robust-looking global growth, MSCI’s 47-country All World share index was up for a third day running, though it was forced to cling on as Europe’s main bourses faltered despite a fresh flurry of M&A activity.
They were unsettled by some heavy falls among defensive consumer staples and property stocks, a dip in the commodity sector as oil stumbled and as futures markets pointed to a flat start to US trading for Wall Street.
Treasuries and benchmark European bond yields resumed their march upwards, having paused on Monday, as the focus shifted back to the pace of monetary tightening in the world’s largest economies.
Federal Reserve chief Janet Yellen starts two days of testimony today as it prepares to unwind the massive hoard of bonds it bought to ease the financial crisis, while top ECB and Bank of England policymakers were to speak in Europe yesterday.
Germany’s 10-year yield edged up two basis points to 0.56 per cent, having more than doubled over the last few weeks. The South African rand, Turkish lira and Russia rouble all dropped around one per cent as some unusually concentrated selling resumed to emerging markets too.
The dollar ground higher against most major currencies, including to a four-month high of 114.43 yen as traders played the past fortnight’s 25 basis-point rise in US government bond yields against the Bank of Japan’s vow to keep its stimulus flowing.
The New Zealand dollar fell to its lowest in over two weeks meanwhile after an 6.8 magnitude earthquake hit the country’s south island. The Canadian dollar was down slightly too as investors awaited a Bank of Canada interest rate decision today which could be its first hike since the financial crisis.
Forecasters are still divided on whether it will pull the trigger but money markets seem convinced it will and are also 80 per cent priced for a follow-up rise by December.
In commodities, crude oil slipped back after pushing higher overnight in Asia.
Increased drilling activity in the US and uncertainty over Libyan and Nigerian production cuts clouded the future supply outlook, leaving US crude down a third of a dollar at $44.13 a barrel and Brent at $46.57.
BNP Paribas slashed its forecasts for Brent by $9 to $51 a barrel for 2017 and by $15 to $48 for 2018. Barclays also cut its 2017 and 2018 Brent forecasts to $52 a barrel.
Gold edged lower to $1,212.13 an ounce as it headed back towards a four-month low and copper dipped too as the prospect of a strike at one of Chile’s big mines failed to offset data.