Global stocks rise, dollar falls as Fed rate path re-assessed

World stocks rose towards a six-year high on Monday.

The Dollar and bond yields slipped as last week’s weak U.S. jobs data strengthened the case for the Federal Reserve to keep interest rates low for longer.

Emerging markets were biggest beneficiaries, having previously been under pressure as investors took funds away from those economies most reliant on external funding back into the recovering developed world.

Friday’s data showed the U.S. economy had its weakest monthly job growth in three years in December.

This triggered a slide in U.S. Treasuries where benchmark yields posted their biggest one-day drop since October.

The report did not change expectations that the Fed would wind down its bond-buying program by year-end.

Meanwhile, interest rate futures markets pushed back the timing of the first rate hike towards late-2015 from mid-2015.

“The market is taking its leads from U.S. Treasury markets, which are generally weighing on the dollar across the board,” said Adam Cole,global head of FX strategy at RBC Capital Markets.

MSCI world equity index gained 0.2 per cent, approaching a six-year high set last month, buoyed by a 0.7 per cent gain in emerging stocks.

European stocks followed Asia higher to rise 0.3 per cent, staying near a five and half year peak. Japan was closed for a public holiday.

European banking stocks rose 1.2 per cent after global banking regulators agreed on Sunday to ease a new rule on how banks’ leverage ratios are calculated .

They agreed to avoid crimping financing for the world economy.

“This is good news because it will give banks some breathing space.

“There have been concerns that high ratios will hit banks’ profitability,” said Global Equities’ head of quantitative sales trading, David Thebault.

“The fact that euro zone assets lead the gains so far this year is a positive sign.

“It means that things have greatly stabilised and that the region is not a pariah for global investors as it used to be.”

Investors will keep an eye on the fourth-quarter earnings season, with major U.S. banks announcing results this week.

Such banks include JPMorgan, Citigroup, and Goldman Sachs.

European earnings will gather pace in the last week of the month.

Benchmark 10-year euro zone bond yields were slightly lower on the day, while Bund futures prices rose three ticks.

The 10-year U.S. yield was stable at 2.8635 per cent, slightly above Friday’s lows.

The dollar fell 0.7 per cent to 103.24 yen, its lowest level in nearly a month, pulling further away from a five-year high of 105.45 yen set earlier this month.

In commodity markets, gold extended its rally to a one-month peak at 1,254.05 dollars san ounce having climbed 1.5 per cent on Friday.

Oil prices retreated after nations struck a six-month deal with Iran to curb its nuclear program and U.S. President Barack Obama urged Congress not to impose additional sanctions on the country.

Nymex oil futures lost 0.6 per cent, Brent crude fell below 107 dollars a barrel.

(Reuters/NAN)


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