Stocks, dollar hold gains with all eyes
on Fed meeting
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[June 17, 2019]
By Marc Jones
LONDON (Reuters) - European shares tip-toed
higher alongside government bond yields on Monday, as investors braced
for what is shaping up to be a crucial week for global monetary policy.
With the U.S. Federal Reserve likely to signal on Wednesday whether it
is readying its first interest rate cut since the financial crisis and
oil still choppy after last week's Gulf tanker attacks, most markets
were hesitant first thing.
The focus was still the dollar's surge on Friday after above-forecast
U.S. industrial output and retail sales data and upbeat consumer
confidence soundings pushed back futures markets expectations of any
quick Fed rate cut.
The greenback held its gains as most major currencies trod water, while
the pan-European STOXX 600 index was also barely moved as a profit
warning from Germany's Lufthansa hit airlines and canceled out a 0.8%
rise in banking stocks. [.EU]
"A (U.S.) rate cut this week seems extremely premature," said Royal Bank
of Canada's Global Head of FX Strategy Elsa Lignos.
"But the Fed can make some communications tweaks that at least open up
the possibility for a cut in July. The question is how flexible that
messaging will be."
Traders are pricing a high probability of a July rate cut, despite there
being unusually high uncertainty, particularly around trade, Lignos
added. She said a G20 meeting late this month could also change the
The main concern though is if tensions do continue, the trade war could
tip the U.S. and other economies into recession.
The dollar index against a basket of six major currencies The index last
stood at 97.510 near a two-week high, while the euro fetched $1.1216,
near the lower end of its recent trading range.
With long-term inflation expectations at an all-time low again, euro
zone bond yields held close to their multi-year trough, despite inching
fractionally higher early on.
European Central Bank board member Benoit Coeure said in an interview
that the bank's already sub-zero interest rates could be cut again if
needed. It could also restart the quantitative easing program it wound
down at the end of last year.
"The question is not whether we have instruments; we do have
instruments. We can change our guidance. We can cut rates. We can
restart QE," Coeure told the Financial Times.
"The question is which instrument, or combination of instruments, would
be best suited to the circumstances."
The dollar index against a basket of six major currencies climbed to
97.583 on Friday, its highest level in almost two weeks, after the U.S.
retail sales data eased fears that the world's largest economy is
The index last stood at 97.510, while the euro fetched $1.1216, near the
lower end of its weekly trading range.
MSCI's broadest index of Asia-Pacific shares outside Japan had ended
slightly weaker overnight while Japan's Nikkei average had closed flat.
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The German share price index DAX graph is pictured at the stock
exchange in Frankfurt, Germany, June 14, 2019. REUTERS/Staff
The Bank of Japan is widely expected to reinforce its commitment
this week to a massive stimulus program for some time to come.
There had been something of boost from Hong Kong's Hang Seng Index
which finished 0.4% higher. At the weekend, the territory's leader
Carrie Lam backed down over a bill that would have allowed
extradition to China.
The Hang Seng fell for three sessions in a row through Friday, after
the extradition bill triggered mass protests and some of the worst
unrest seen in the territory since Britain handed it back to Chinese
rule in 1997.
"Last week the issue looked as if it would become another thorny
point between the United States and China. As the bill is now being
postponed indefinitely, things will likely calm down, which is good
for markets," said Hiroyuki Ueno, senior strategist at Sumitomo
Mitsui Trust Asset Management.
Mainland Chinese shares traded within a tight range, with the
benchmark Shanghai Composite up 0.2% and the blue-chip CSI 300
U.S. Secretary of State Mike Pompeo told Fox News on Sunday that
President Donald Trump would raise the issue of Hong Kong's human
rights with China's President Xi Jinping at a potential meeting of
the two leaders at the G20 summit in Japan later this month.
Geopolitical tensions in the Middle East added another layer of
uncertainty after the United States blamed Iran for attacks on two
oil tankers in the Gulf of Oman last week.
U.S. Secretary of State Pompeo said Washington will take all actions
necessary to guarantee safe navigation in the Middle East, though
oil prices slipped again as worries about the broader slowdown in
the global economy returned.
Brent futures fell 25 cents, or 0.4%, to $61.76 a barrel by 0900
GMT, after gaining 1.1% on Friday while logging their fourth
consecutive weekly fall.
U.S. West Texas Intermediate (WTI) crude futures were down 22 cents,
or 0.4%, at $52.29, having firmed by 0.4% in the previous session.
"Today, oil markets will have to digest more demand concerns as
India implemented retaliatory tariffs on a number of U.S. goods
yesterday," consultancy JBC Energy said in a note.
Also sapping prices was the dim outlook for oil demand growth in
2019 projected by the International Energy Agency (IEA) on Friday,
citing worsening prospects for global trade.
Bitcoin jumped overnight to $9,391.85, its highest level in 13
months. It was last quoted at $9,195.62, up 2.4%.
(Reporting by Marc Jones; Additional reporting by Tomo Uetake in
Tokyo; Editing by Hugh Lawson)
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