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The dollar and Treasury yields are shedding some of their recent gains, while global stocks are struggling to advance further into record territory, as the “reflation trade” loses momentum.

The more cautious tone leaves industrial commodities under pressure but is supporting the price of gold.

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A mostly positive Asia-Pacific session helped push the FTSE All-World equity index to a fresh intraday record of 293.85, though a mixed start in Europe saw the global stock barometer pulling back slightly, now up only 0.2 per cent to 293.81.

The All-World, which contains more than 3,000 members and sports a market capitalisation of $49.6tn, is up 8.2 per cent since Donald Trump’s election as US president. US stocks make up about 50 per cent of the index.

Investor sentiment has been buoyed by hopes Mr Trump’s mooted policies of tax cutting, deregulation and infrastructure spending will boost the world’s biggest economy, further expanding global growth at a time when there were already signs of a pick up in Europe and China.


This “reflation trade” has helped the All-World industrial metals and mining sectors gain 23 per cent and 15.6 per cent respectively since the US poll result.

The banking sector, which makes up 10 per cent of the All-World, has gained 18 per cent over that period, as shares in Wall Street giants like Goldman Sachs have revelled at the prospect of higher interest rates, an improving economy, and a lighter regulatory touch.

What to watch

The European Central Bank is due to release the minutes of its January monetary policy meeting at 12:30 GMT.

Traders will be keen to read to what extent the rate-setting body discussed the scaling back of its asset purchase programme amid recently improving economic data for the bloc.

A bunch of US data published at 13:30 GMT include January housing starts, weekly initial jobless claims and the Philadelphia Fed manufacturing survey.

Equities

US index futures suggest Wall Street will pause for breath after closing the previous session at another record. The S&P 500 is in line to add just half a point to 2,349.7 when trading gets under way later in New York.

The lack of momentum is providing opportunity for European bourses to take stock. The Euro Stoxx 600, which closed on Wednesday at its best level since December 2015, is dipping 0.1 per cent.

The mood in the Asia-Pacific was a bit more upbeat as dealers played catch-up with US gains. Hong Kong’s Hang Seng index rose 0.4 per cent and on the Chinese mainland the Shanghai Composite added 0.5 per cent as construction-sensitive equities found favour.

Australia’s S&P/ASX 200 inched up 0.1 per cent, but Japan’s Topix index was off 0.2 per cent as the yen strengthened and shares in Toshiba continued to fall in the wake of this week’s announcement of a $6.3bn writedown.

Fixed income

Sovereign bond prices, which move inversely to yields, are firmer after several difficult sessions.

The sector has seen sellers dominate of late as the reflation trade was given added impetus by mounting speculation that the Federal Reserve could raise interest rates again in March.

The 10-year US Treasury yield, which at point on Wednesday hit a three-week high of 2.52 per cent in the aftermath of stronger than expected US retail sales and inflation data, is down 2 basis points to 2.48 per cent.

Equivalent maturity German Bund yields are off a fraction of a basis point to 0.38 per cent and UK gilts are steady at 1.30 per cent.


Futures markets are pricing in a 44 per cent chance that the Fed will raise borrowing costs by 25 basis points at its meeting in May, up from 28 per cent at the start of the week.

Forex

The rising expectations of a US rate hike have been supporting the dollar in recent sessions, but the currency is seeing some profit-taking.

The dollar index tracking the greenback against a basket of peers is off 0.2 per cent to 100.99 as the euro adds 0.1 per cent to $1.0608.

The British pound is gaining 0.2 per cent to $1.2480 and the Japanese yen is 0.2 per cent firmer at ¥113.93 per buck.

Commodities

Oil prices are softer as Wednesday’s news that US oil stocks had climbed for a sixth straight week continue to weigh.
Brent crude, the international benchmark, is down 0.2 per cent at $55.66 a barrel and West Texas Intermediate, the American marker, is off 0.2 per cent at $52.99.

Base metals are mixed as the recent rally fades. Copper, which this week rose above $6,200 a tonne as workers went on strike at Chile’s Escondida mine, is down 0.3 per cent on the day to $6,034.

Gold is welcoming the softer dollar and easing bond yields, the precious metal gaining 0.1 per cent to $1,234 an ounce.

Copyright The Financial Times Limited 2017. All rights reserved.
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