World stocks hit another record high yesterday and the dollar reached an eight-week peak against the yen on expectations the US Federal Reserve will unveil plans this week to trim its bloated balance sheet.
With no new actions by North Korea over the weekend, investors pushed Europe’s main share index to a six-week high. MSCI’s broadest index of Asia-Pacific shares outside Japan had earlier risen to heights not visited since late 2007.
That nudged MSCI’s index of world stocks to a new all-time high while futures prices pointed to a new record high on Wall Street.
An address by US President Donald Trump to world leaders at the United Nations today and elections in Germany and New Zealand will add extra political uncertainty to the mix this week.
But the main event will be the Fed’s meeting today and tomorrow, at which it is likely to take another step toward policy normalisation in what is rapidly becoming a worldwide trend.
Canada has already raised interest rates twice in recent months, while the Bank of England shocked many last week by flagging its own coming increases. The European Central Bank is meanwhile expected to shed more light on plans to exit its extraordinary stimulus next month.
Yet persistently subdued inflation despite a pick-up in global growth remains the “trillion dollar” question for central banks looking to normalise policy, a report from Bank for International Settlements said on Sunday.
As such, investors are far from persuaded the Fed will move on rates again this year, with a December change put at less than a 50 per cent probability in the futures market.
US government bond yields jumped a hefty 14 basis points last week, but were little changed yesterday, as were most developed bond markets.
In Europe, the eye-catching move was a sharp slide in Portuguese yields – and rise in prices – after the country regained an investment grade rating after five and a half years.
In currencies, the dollar gained as much as 0.5 per cent against the yen to hit 111.42, its highest since late July. The Bank of Japan is widely expected to maintain its massive asset buying campaign at a meeting on Thursday.
Against a basket of currencies, the dollar was flat at 91.870 after giving up earlier gains.
Sterling touched its highest since the Brexit vote yesterday after notching its best week in almost nine years against a currency basket.
Talk of monetary tightening and a bounce in the dollar put gold on the defensive. The precious metal was off 0.4 per cent at $1,314.43 an ounce.
United States crude oil prices rose above $50 per barrel yesterday and were near last week’s multi-month highs as the number of United States rigs drilling for new production fell and refineries continued to restart after getting knocked out by Hurricane Harvey.