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Global equities are at fresh highs after Wall Street hit another record in the wake of comments from Federal Reserve chair Janet Yellen.


Ms Yellen’s more hawkish than forecast tone leaves gold floundering but the dollar near its strongest in more than three weeks and Treasury yields towards the top of this year’s range.

Hot topic

The Fed chair will undertake a second round of testimony in Washington later in the session, but in the meantime the market is continuing to digest her remarks from Tuesday.

The dollar rose and bond yields jumped after Ms Yellen said an improving economic picture kept alive the potential for rate rises, even as she stressed the uncertainties facing the US economy as the new administration planned its mooted fiscal boost.

Indeed, she was deemed to have adopted a more hawkish stance than expected when she stressed that waiting too long to tighten monetary policy could be “unwise” because it may force the central bank to hike borrowing costs at a faster pace in the future.

The bond market moves put pressure on interest rate-sensitive assets like shares of utility companies, but financial stocks have been lifted as traders also continue to hope for a lighter regulatory regime under the Trump administration.

“The strength of the signal from Chair Yellen was not sufficient to upset ongoing resilience in risk appetite,” said Todd Elmer, strategist at CitiFX.

Ian Williams, strategist at Peel Hunt, said the positive reaction by stocks shows that “central bank policy support is no longer the main driver of equity market performance”.
Indeed, US stocks hit new records, with the S&P 500 closing Tuesday’s session at 2,337.6. Futures indicate the benchmark will add another 1.5 points when trading gets under way later in New York.

Equities

Wall Street’s fresh peak is helping support the global bull run, which was given extra propulsion by hopes president Donald Trump’s policies would boost US growth.

The FTSE All-World index, of which US stocks have a 51.7 per cent weighting, is up 0.3 per cent to 292.43, surpassing its previous record touched in May 2015.

The All-World has risen 7.4 per cent in dollar terms since Mr Trump’s election, with the industrial metals sector surging 23 per cent, banks up 16.3 per cent and miners up 14.9 per cent, according to Bloomberg.

The pan-European Stoxx 600 index is gaining 0.3 per cent to its best level since December 2015 and the FTSE Asia-Pacific index is adding 0.8 per cent and in line to close the session at a 19 month high.

In Tokyo the Topix index gained 1 per cent, even as Toshiba tumbled as investors reacted to Tuesday’s delayed after-market earnings announcement revealing a $6.3bn writedown at its nuclear business and plans to potentially sell off the valuable key Nand memory chip business entirely.

Australia’s S&P/ASX 200 rose 0.9 per cent, Hong Kong’s Hang Seng index advanced 1.2 per cent, and in South Korea, the Kospi Composite was up 0.5 per cent, though
Samsung struggled on news that prosecutors have made a second request for an arrest warrant for the conglomerate’s heir apparent, Lee Jae-yong.

Action on the Chinese mainland was more subdued, with the Shanghai Composite off 0.2 per cent and the tech-heavy Shenzhen Composite retreating 0.9 per cent as profi-takers moved in after a recent strong run.

Forex

The dollar index, which measures the US currency against a basket of peers, is up less than 0.1 per cent to 101.92, but hovering near its best level since January 20 following Fed chair Yellen’s comments.

The euro is easing 0.1 per cent to $1.0569 and sterling is off 0.1 per cent to $1.2455 ahead of UK jobs data due at 09:30 GMT.

The Japanese yen, which tends to weaken when the broader market mood is upbeat, is 0.2 per cent softer at ¥114.50 per dollar.

Fixed income

Bond markets also are still absorbing Ms Yellen’s comments. The yield on 10-year US Treasuries is up 1 basis point at 2.475 per cent after rising 3bp on Tuesday. Bond yields move inversely to price.

The more policy-sensitive US 2-year yield is steady at 1.23 per cent as futures markets price in a 34 per cent probability of a Fed rate hike next month. That calculation may change if US consumer inflation and retail sales data, due at 13:30 GMT, don’t match analysts’ expectations.

Ten-year German Bund yields are 1bp firmer at 0.38 per cent and equivalent maturity UK gilts are steady at 1.31 per cent.

Commodities

Brent crude, the international oil benchmark, is down 0.3 per cent to $55.82 a barrel and West Texas Intermediate, the US marker, is off by 0.5 per cent to $52.95 ahead of US inventory data due later on Wednesday.

Gold tends to struggle when the dollar and bond yields rise and so the precious metal is slipping 0.2 per cent to $1,226 per ounce.

Copyright The Financial Times Limited 2017. All rights reserved.
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