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European Stocks Extend Global Rally as Fed Baked In

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The rally in global stocks extended into a third day amid optimism economic growth is strong enough to withstand higher U.S. interest rates. Germany’s two-year note yield slid to an all-time low, while oil fluctuated after OPEC deferred a decision on production cuts.

European shares rose to a four-week high after U.S. stock indexes advanced to records on Tuesday. German yields sank amid increased amid speculation the European Central Bank will ease policy at next month’s meeting, while Malaysia’s ringgit slumped for an 11th day after the central bank’s decision to leave interest rates unchanged failed to assuage concern over capital outflows. Oil swung between gains and losses after OPEC left unresolved how Iran and Iraq will participate in planned output cuts.

Equity traders are taking an optimistic stance before America’s Thanksgiving holiday on Thursday, sending the MSCI All-Country World Index toward its longest winning streak in two months. Developed-market shares and the dollar have been among the biggest winners since Donald Trump’s surprise election victory fueled speculation of more fiscal stimulus in the U.S., while government bonds and emerging markets have slumped. Traders will look for further confirmation of the Fed’s policy intentions when minutes from the central bank’s November meeting are released on Wednesday.

“Bulls have got control here and U.S. equity and many other developed markets are going higher, at least in the short term,” Chris Weston, chief markets analyst in Melbourne at IG Ltd., said in an e-mail. “The Fed has been guiding market participants to believe they always wanted a hike in December. They just needed a little more information before increasing rates and now they have more than enough information to convince them.”

Along with the Fed minutes, U.S. data on durable goods orders, jobless claims, home prices and manufacturing are due Wednesday.

Stocks

The Stoxx Europe 600 Index rose 0.2 percent at 8:31 a.m. in London, while the U.K.’s FTSE 100 Index added 0.7 percent. U.K. Chancellor of the Exchequer Philip Hammond is scheduled to outline a series of measures to help “ordinary working-class families” and stress that a stable economy, fiscal discipline and better productivity are the best ways to raise living standards in his Autumn Statement to Parliament on Wednesday.

The MSCI Asia Pacific excluding Japan Index advanced 0.7 percent, building on last session’s 1.1 percent increase. Australia’s S&P/ASX 200 Index added 1.3 percent and the Hang Seng China Enterprises Index climbed 0.2 percent.

Futures on the S&P 500 Index rose 0.1 percent after all four major U.S. stock benchmarks climbed to records on Tuesday.

Bonds

The yield on German two-year notes opened at a record low of minus 0.74 percent, buoyed in part by increased demand for the securities as collateral. Yields on 10-year U.S. notes were little changed at 2.31 percent. With Japanese markets closed for Labor Thanksgiving Day, trading in Treasuries was delayed until the European open.

New Zealand’s 10-year bonds led a retreat in Asia, with yields increasing seven basis points, or 0.07 percentage point, to 3.13 percent. Rates on similar-maturity Australian notes rose three basis points to 2.71 percent.

Currencies

The Bloomberg Dollar Spot Index, which tracks the greenback against 10 major peers, was little changed after climbing 4 percent since the election. Minutes of the Fed’s November policy meeting are expected to confirm officials were creeping closer to their first rate increase in a year even before Trump’s victory.

“A December Fed funds 25 basis-point rate hike is fully priced in,” said Elias Haddad, a senior currency strategist at Commonwealth Bank of Australia in Sydney. “The dollar will continue to be driven by the pace of the Fed’s tightening cycle beyond December.”

Malaysia’s ringgit fell 0.5 percent against the dollar, heading for the longest losing streak since December 2013, even as the central bank said it will continue providing liquidity for an orderly currency market. Bank Negara Malaysia held its overnight policy rate at 3 percent, a sign that policy makers have shifted their focus from spurring economic growth to supporting the ringgit.

China’s yuan weakened to a record in offshore trading, sliding as much as 0.1 percent to 6.9222 per dollar. The extra cost of options to sell the yuan against the dollar over contracts to buy rose to the highest since June 30.

The Australian dollar strengthened 0.4 percent, buoyed by a 7.3 percent gain in iron-ore futures in China.

Commodities

Brent crude swung between gains and losses after a three-day rally. Preliminary talks in Vienna ended without finalizing how OPEC’s second- and third-largest producers will participate in the deal to reduce production, deferring the matter until the group’s formal meeting on Nov. 30, two delegates said Tuesday. U.S. crude stockpiles fell last week, the industry-funded American Petroleum Institute was said to report. Government data due Wednesday is forecast to show a gain.

Copper for three-month delivery rose 0.2 percent to $5,623 a metric ton on the London Metal Exchange.

Source:Bloomberg