LONDON (Reuters) – World stocks extended their white-hot start to the year on Tuesday, while the dollar was straining for a fourth day of gains as traders awaited U.S. President Donald Trump’s State of the Union address.
FILE PHOTO – People walk past the entrance of the London Stock Exchange in London, Britain. Aug 23, 2018. REUTERS/Peter Nicholls
The U.S. Federal Reserve’s recent caution continued to feed risk appetite but there were a number of idiosyncratic factors marching markets higher.
News that oil giant BP had doubled its profits saw Europe’s oil and gas sector jump 1.5 percent and propelled London’s FTSE toward its longest winning streak since April. [.L][.EU]
Wall Street futures [.N] were pointing up again while miners were strong globally as well after news that Brazil had ordered the world’s largest iron ore miner, Vale, to close eight of its dams in the wake of a deadly collapse last month.
Iron ore prices surged 14 percent at the end of last week in anticipation of the move and are now at a near two-year high.
“Our fundamental view is there no reason for this incredible move, so is it just speculation, a frenzy about possible stimulus in China?” said Saxo Bank’s head of FX Strategy John Hardy. “What should we do with it? I don’t know, but it should be noted.”
China and large parts of Asia had been closed for Lunar New Year celebrations overnight but the markets that were open made some headway.
Japan’s Nikkei average marked its highest level in seven weeks before fading to finish slightly lower. [.T]
Australian shares suffered no such fatigue. They jumped 2 percent, with long-battered financials surging after a government-appointed misconduct inquiry left the structure of the country’s powerful banks in place.
Wall Street was still being cheered after technology and industrials helped the S&P 500 and Nasdaq break through 100-day moving averages on Monday and sent the VIX “fear gauge” to a four-month low. [.N]
Futures had the S&P, Dow and Nasdaq opening 0.2-0.3 percent higher, and with Europe still rallying, MSCI’s gauge of stocks across the globe scaled fresh two-month highs following its best January on record.
In the currency markets, the dollar held on to recent gains against its major peers as investors waited on monthly ISM survey data, having lapped up Friday’s strong payrolls number and a manufacturing survey.
After reining in rate hike expectations last week the Fed took the unusual step of issuing a statement on Monday saying that its head Jerome Powell had told U.S. President Donald Trump and Treasury Secretary Steven Mnuchin that “the path of policy will depend entirely on incoming economic information.”
The dollar’s index against six major currencies was a fraction higher at 95.916, having gained 0.27 percent on Monday, while U.S. Treasury yields were also creeping up again. [GVD/EUR]
PULL TO PARITY
The euro weakened slightly to $1.1420 after data showing euro zone business growth almost stalled in January but the bigger moves were elsewhere. [/FRX]
The Swiss franc looked to be heading for another spell of parity against the dollar after falling across the board.
Some of its sharpest losses were against high-yielding currencies such as the Australian dollar, which was lifted to $0.72 overnight when the central bank sounded less dovish than markets had wagered as it kept interest rates on hold.
“With the dollar/Swiss franc breaking through parity, some stops seem to have triggered in a broadly risk-on market,” said Kamal Sharma, director of G10 FX strategy at Bank of America Merrill Lynch.
Traders’ attention was already shifting to Trump’s delayed State of the Union address, due at 2100 ET Tuesday/0200 GMT Wednesday.
He told a White House event over the weekend that he might declare a national “emergency” because Democrats in Congress weren’t moving toward a deal to provide money to build a wall on the border with Mexico.
Such a step would likely prompt a court challenge from Democrats but there will also be focus on what message Trump sends on issues like the ongoing trade war with China and potentially some other parts of the world.
“If President Trump persists in his long-promised wall along the U.S.-Mexico border in the upcoming address, it would cap the dollar’s rally,” said Kengo Suzuki, chief FX strategist at Mizuho Securities.
Additional reporting by Hideyuki Sano in Tokyo and Tom Finn in London; Editing by Catherine Evans