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European equity gauges have made mild further gains, with the FTSE 100 creeping to a new record high, after the latest Trump-inspired rally pushed Wall Street to fresh peaks.
The dollar and government bond yields are holding recent gains as traders further shorten the odds on an interest rate rise by the Federal Reserve this month. The firmer buck is weighing on gold prices, while oil prices are softer, too.
US president Donald Trump’s more conciliatory speech to Congress this week has reignited optimism that his administration’s policies can help accelerate the world’s biggest economy and add additional propulsion to already improving global growth.
The result is a flurry of record highs for equity benchmarks.
The FTSE All-World, an international 3,077-member index with a $50tn market capitalisation, closed on Wednesday in virgin territory, having climbed 9.2 per cent since Mr Trump’s election victory. The S&P 500, Wall Street’s primary stock barometer, ended the previous session at a record 2,396, up 12 per cent over the same period, while the UK’s FTSE 100 closed at a never-before-seen 7,383.
Gains have been broad-based as investors weigh the impact on earnings of better growth and mooted US tax cuts. US banks in particular have been chipper, the sector advancing by more than a third on hopes of less regulation. Materials companies have benefited by Mr Trump’s pledge to deliver a $1tn infrastructure boost.
The stock market’s latest rally is that it has occurred at a time when US monetary policy is expected to be tightened at a faster pace.
For much of the post financial crisis trading environment lower borrowing costs were considered a crucial element in reviving equities.
According to futures markets, the probability of the Fed raising interest rates by 25 basis points at its meeting on March 15 has jumped from 38 per cent a week ago to 86 per cent.
And yet investors now see the prospect of higher US borrowing costs as a positive signal because it shows the central bank is more optimistic on the economy. The financial sector is also seen benefiting from higher rates which should improve banks’ lending margins.
The US dollar index (DXY), which measures the buck against a basket of its peers, continues to be supported by the prospect of a Fed rate rise.
The DXY, which climbed 0.7 per cent on Wednesday, is up another 0.1 per cent to 101.90, as the euro dips 0.1 per cent to $1.0535 and sterling holds at $1.2291.
Japan’s yen is 0.4 per cent weaker at ¥114.13 per dollar, eyeing a four-day losing streak that would be its longest since the week of the US election in November.
The Australian dollar is off 0.2 per cent to $0.7660 after data showed the nation’s trade surplus narrowed by more than economists expected during January, somewhat in contrast to more recent data showing the economy to be in overall good health.
Oil prices are drifting lower after a report on Wednesday showed US stockpiles at a record 520.2m barrels.
Brent crude, the international benchmark, is down 0.1 per cent to $56.31 a barrel, while West Texas Intermediate, the most closely watched US contract, is slipping 0.3 per cent to $53.66.
Gold is again struggling in the face of a firmer dollar and the prospects for higher US interest rates, with the bullion off 0.2 per cent to $1,246 an ounce.