Record-high world stocks paused yesterday and the dollar dipped, as investors waited for signals from the Federal Reserve on when it will start shrinking its balance sheet and nudge up US interest rates again.
Tokyo’s Nikkei had surged two per cent overnight having been closed on Monday when Wall Street and MSCI’s 47-country All World index hit fresh all-time peaks, but elsewhere bourses seemed ready for a breather.
S&P 500 and Dow futures pointed to a fractionally higher start in New York as a small rise from London’s FTSE helped Europe claw back to flat, having spent the morning in and out of the red.
The pause came after eight days of gains in the previous nine, a more than four per cent jump in the last three weeks and as investors shifted back into the euro and government debt instead.
An early flurry of activity had seen the euro pop to a near two-year high versus the Japanese yen of 134.14 yen. The Bank of Japan also meets this week but unlike the Fed is expected to signal it will keep its stimulus at full thrust.
Elevated risk appetite in Europe, meanwhile, saw the gap between Portuguese and Italian 10-year government bond yields narrow to levels not seen since the start of the euro zone debt crisis of 2010-2012.
That followed a strong rally in Portuguese debt over the last two sessions, after S&P became the first major ratings agency to give the country back an investment grade rating, more than five years after it first sank into junk territory.
A fast-charging euro then hit its highest against the Swiss franc since the Swiss National Bank sent markets into shock in early 2015 when, without warning, it removed a cap it had been using to control the franc.
The small rise in Wall Street futures came after the S&P 500 and Dow had both eked out new peaks on Monday despite some late pressure on big tech stocks.
The dollar index, which tracks the greenback against a basket of six major rivals, inched 0.2 per cent lower to 91.889.
Britain’s sterling also started to rise again having been pushed off post-Brexit highs on Monday by Bank of England governor Mark Carney who said any upcoming UK rate hikes would be gradual and limited.
In commodity markets, metals shifted lower and oil prices steadied near last week’s multi-month highs. Traders braced for a potential stockpile build-up expected later this week, limiting the prospect for further gains.
US crude futures were up 19 cents at just above $50 per barrel, within sight of tomorrow’s nearly four-month high of $50.50.
Brent crude hovered at $55.50, not far from an almost five-month high of $55.99 it had marked that day.