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Monday 20:05 GMT. Global equities edged up to their highest levels for nearly six years as the S&P 500 index reached a fresh record high, although markets in general had a fairly subdued feel to them ahead of this week’s US Federal Reserve policy meeting.
Oil prices were an exception as Brent crude jumped $2.68 to settle at $109.61 a barrel. The rise came amid reports that Libyan exports had fallen sharply after weekend protests at its oilfields and ports.
As New York trading drew to an end, the FTSE All-World equity index was up 0.2 per cent at 262.61, its highest since early January 2008. The S&P 500 inched 0.1 per cent higher to a record close of 1,762.
Across the Atlantic, the FTSE Eurofirst 300 fell 0.1 per cent, although the Nikkei 225 in Tokyo rebounded 2.2 per cent following a sharp fall on Friday.
The recent upward momentum for equities has been supported by the view that economic growth is sufficient to underpin corporate earnings but mild enough for central banks to maintain an accommodative policy stance.
As such, expectations for when the Federal Reserve will begin scaling down, or “tapering”, its $85bn-a-month quantitative easing programme have been pushed out by many investors to next year.
Michael Hanson, US economist at BofA Merrill Lynch, said this week’s Federal Open Market Committee meeting would be more notable for what is discussed than what is done.
“The partial federal government shutdown did not just delay major data releases and trim several tenths from expected fourth-quarter GDP growth,” he said. “It is also likely to keep the Fed from tapering this year.
“Indeed, several Fed officials have indicated that tapering is off the table for now. We expect no tapering and no changes to forward guidance. However, both of these policy tools are likely to be discussed at length at this meeting, making the minutes of particular interest.”
There was little in the day’s US economic releases to challenge the consensus view on Fed tapering. While industrial production rose more than expected last month, manufacturing output was sluggish – while pending home sales fell sharply.
“A summer-long upwards creep in mortgage loan costs appears to have deterred home buyers from taking the plunge, coinciding with the back-to-school season,” said Andrew Wilkinson at Miller Tabak.
Meanwhile, the dollar index – a gauge of the US currency ’s value against a weighted basket of counterparts – held steady after dropping last week to an eight-month low.
The euro was down 0.1 per cent at $1.3795 – after hitting a two-year high above $1.38 last week – while the dollar was 0.3 per cent firmer against the yen at Y97.66.
Samarjit Shankar, global strategist at BNY Mellon, said the past few days had seen modest net inflows into the dollar, a change from recent weeks during which the currency had been steadily net sold since mid-September.
“With the greenback having borne the brunt of the scaling back of expectations of the Fed tapering its ongoing QE programme amid the recent fiscal stand-off in Congress, some portfolio managers appear to be looking beyond market consensus that does not see any tapering before the first quarter of 2014.”
Gary Dugan, chief investment officer Asia and Middle East at Coutts, argued that investors were probably being overly pessimistic on the US economy and suggested it might be time to buy dollars again.
“As a Fed tightening has dropped off the agenda, the dollar index has also fallen 6.2 per cent from its July peak when markets were pricing in an early trimming of QE,” Mr Dugan said.
“The heated debate over the debt ceiling and disappointing US economic data following the government shutdown have also weighed on the US currency. Sentiment should recover, as should the economy. But as the new year starts, worries about the debt ceiling will again rear their head.”
Expectations for an extended period of Fed asset buying have supported US government bonds, with yields last week touching three-month lows. The 10-year Treasury yield was up 1 basis point to 2.51 per cent while the equivalent duration German Bund held steady at 1.75 per cent.
In a similar vein, gold briefly traded at a five-week high of $1,361 an ounce on the back of taper delay hopes, before paring its advance to stand just $1 higher at $1,353.
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