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Global equities are in virgin territory after Wall Street closed at another record amid a positive outlook for economic growth.

Political concerns leave the euro carrying the wooden spoon in the forex markets, while the broadly upbeat tone damps demand for sovereign bonds, pushing up yields.

Hot topic
The FTSE All-World equity index is at another record, up 0.2 per cent to 295,24, as investors are buoyed by signs of improvement in the global economy.

A batch of national and regional manufacturing and service sector surveys released on Tuesday provided the latest evidence that activity is picking up.

With US stocks making up about 50 per cent of the All-World, it is Wall Street that is the main driver of the global rally.

After US investors returned from a long weekend, the S&P 500 rose 0.6 per cent on Tuesday to a new closing peak of 2,365. The US benchmark has now gone 90 days without closing lower by more than 1 per cent as the Vix, a popular measure of market volatility, hovers at 11.6, around historically low levels.

The blue-chip Dow Jones Industrial Average and the tech-heavy Nasdaq Composite also registered fresh record highs, with the Dow adding 0.6 per cent and now sitting just 257 points from breaching the 21,000-point level. The Dow broke through 20,000 for the first time less than four weeks ago.

Positive earnings recently from US companies — including Walmart this week — have helped sustain a rally sparked by expectations of infrastructure investment and tweaks to financial regulations and corporate taxes under President Donald Trump’s administration.

US futures suggest the S&P 500 may dip 1.5 points at the open on Wednesday.

But Kathleen Brooks, research director at City Index, warned against assuming Wall Street is ripe for a correction:

For those predicting the market’s demise beware, a Bank of America Survey found that historically the 6-months before the end of a market rally produces returns close to 15 per cent. So, even when markets look overpriced and ripe to fall, the market can still push higher.

What to watch
The Federal Reserve is due at 19:00 GMT on Wednesday to release the minutes of its first monetary policy meeting of the year, and traders will scan the report for clues on when to expect the next rate rise.

In testimony to Congress last week, Fed chair Janet Yellen warned it would be “unwise” to wait too long before raising borrowing costs again. Recent data has pointed to the world’s biggest economy running at a reasonable clip with signs of tightness in the labour market.

“Federal Open Market Committee minutes are generally seen as dated but given the recent hawkish lean of Fedspeak, some traders are nervous that the minutes will carry more risk than usual given market conversations around March pricing. Comments on inflation and elaboration, if any, on the balance sheet discussions will be in close focus,” said analysts at Citi.

The US dollar index (DXY), which measures the buck against a basket of its peers, is up 0.1 per cent to 101.94.

The DXY hit a 14-year intraday high of 103.82 at the start of the year amid expectations that president Trump’s mooted policies would cause the Fed to raise interest rates at a faster pace.

Futures markets are pricing in a 38 per cent chance the Fed will hike rates by 25 basis points at its March meeting, up from 31 per cent a month ago.

The policy-sensitive US 2-year government bond yield, which moves inversely to the price, is up 1 basis point to 1.24 per cent, only several basis points shy of its highest level since August 2009.

Fixed income
The longer duration portion of the bond sector is also under pressure, with the 10-year Treasury yield up 1bp to 2.44 per cent.

Equivalent maturity German Bunds are adding 1bp to 0.31 per cent ahead of eurozone inflation data due at 10:00 GMT, and UK gilts are up 1bp to 1.25 per cent before a second reading of UK fourth-quarter GDP, set for release at 09:30 GMT.

French benchmark yields are continuing to nudge higher — up 2bp to 1.11 per cent — as worries linger about the outcome of the country’s election this spring.

Forex
Indeed, such political angst is weighing on the euro, which is slipping on Wednesday by 0.3 per cent to $1.0503, a six-week low.

However, other major currencies are holding their own against the greenback. Sterling is adding 0.1 per cent to $1.2485 and the Japanese yen is 0.3 per cent firmer at ¥113.30 per buck.

The Australian dollar is up 0.3 per cent at $0.7696, shrugging off economic data showing wages growth stagnating.

The Mexican peso is holding at a three-month highs as worries about president Trump’s protectionist stance ease somewhat and after the central bank unveiled a currency-calming $20bn hedging programme.

Copyright The Financial Times Limited 2017. All rights reserved.
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