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Monday 21:00 BST. Global stocks started the week on a firm note amid easing concerns over the situation in Ukraine and a fresh bout of merger and acquisition activity in the US discount retail sector.
But the chief focus for the markets was this week’s annual central bank conference in Jackson Hole, Wyoming, which will see Federal Reserve chairwoman Janet Yellen speak on Friday about the US labour market.
“While risk sentiment has turned positive on the news that Ukraine and Russian foreign ministers met in Berlin over the weekend seeking a solution to the crisis, in truth an agreement is unlikely in the near term – and the market is responding positively to the fact that no further escalation unfolded over the weekend,” said Adrian Miller, director of fixed income strategy at GMP Securities.
“The Fed’s Jackson Hole symposium will clearly focus on the labour market though we are not expecting any new developments, with Ms Yellen likely to reiterate her view that significant slack remains in the labour market.”
The S&P 500 equity index rose 0.8 per cent to 1,971, leaving it less than 0.9 per cent below its record closing high, while the Nasdaq Composite closed at a 14-year peak.
In the discount retailing sector, Family Dollar was in the news after an offer for the company from Dollar General trumped an earlier bid by Dollar Tree.
The CBOE Vix index of implied equity volatility – a gauge of the cost of protecting equity portfolios – was down 5.6 per cent at 12.41 in late trade, well off Friday’s intraday high of 14.94.
In Europe, the FTSE Eurofirst 300 rose 1.2 per cent while the Nikkei 225 in Tokyo ended marginally higher.
The Shanghai Composite index climbed 0.6 per cent to an eight-month high, even after data showed that new home prices fell in 64 out of 70 Chinese cities last month, while foreign direct investment in China dropped 17 per cent in the year to July.
“We expect China’s August [HSBC-Markit manufacturing] purchasing managers’ index on Thursday to ease to 51.3, supporting our view that the recovery remains fragile and requires further policy easing and renewed renminbi weakness,” said analysts at Barclays.
There was better news on the US housing market on Monday, as the National Association of Home Builders’ sentiment index rose to 55 in August from 53, ahead of market expectations and the highest reading since December.
While there was some scepticism among analysts that the housing market was finally starting to pick up, the picture may become clearer this week with the release of figures on housing starts and building permits, plus existing and new home sales.
But it will be the health of the US labour market that takes centre stage on Friday when Ms Yellen airs her views on the subject.
Anthony Karydakis. chief economic strategist at Miller Tabak, suggested that given her consistent focus on the jobs picture, Ms Yellen’s speech could offer strong hints on the path of US monetary policy.
“We suspect the subtle message that will be coming through in her remarks is that the Fed needs to see more consistent evidence of a broad-based improvement in labour markets before it seriously entertains thoughts of a rate hike,” he said.
“The main point here is that we see a good chance that her speech on Friday will be overall friendly to both bonds and equities.”
Alan Ruskin, a strategist at Deutsche Bank, said: “In the last 10 years, the week after the Fed chairperson’s Jackson Hole speech has seen equities rally on every occasion – and by a healthy median of 1.8 per cent over the week.”
Meanwhile, top-tier government bond prices retreated after rising sharply on Friday on worries about Ukraine. The yield on the 10-year US Treasury was up 4 basis points at 2.39 per cent, while that on the German Bund rose 5bp to 1.02 per cent.
The 10-year UK gilt yield jumped 9bp to 2.43 per cent – and sterling edged up 0.2 per cent against the broadly firmer dollar – after Mark Carney, governor of the Bank of England, said the BoE might not necessarily wait for real wages to increase before raising interest rates.
The dollar’s value against a weighted basket of currencies inched 0.2 per cent higher, while gold fell $6 to $1,298 an ounce.
Among industrial commodities , Brent crude sank $1.93 to settle at $101.60 a barrel – its lowest level in more than a year – as concerns faded that the conflicts in Ukraine and Iraq could disrupt supplies.
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