Global stocks flat as the dollar dips from two-year highs
US GDP data is keenly awaited with European markets opening mixed as the dollar’s strength threatens emerging-market currencies
London — The dollar slipped from 23-month highs on Friday ahead of keenly awaited US GDP data for the first quarter, while global shares were on track for a fifth successive weekly gain despite subdued trade.
The dollar index, which measures the greenback against a basket of peers, was down 0.06% on the day, off a nearly two-year high hit on the previous day.
The US currency has gained strongly over the past few days as investors expect the US economy to outperform the rest of the developed world. The dollar index is set to end the week 0.7% higher.
The other big mover in currencies was the yen, which gained as speculators cut short positions ahead of the holidays, which will see most Japanese markets shut for six whole trading days.
Global stocks were largely flat on the day after subdued trading in Asia. MSCI’s All-Country World Index, which tracks shares in 47 countries, was flat but set for its fifth weekly gain on the trot.
Most major European bourses opened lower, but turned around by midday trade in London. The pan-European Stoxx 600 index was up 0.1%. Britain’s FTSE 100 was down 0.2%. Futures markets indicated a lower open on Wall Street.
All eyes were on the US GDP release, which will be closely watched after a string of largely resilient data from an economy in its 10th year of expansion. The data will be out at 12.30pm GMT.
A string of solid numbers has led analysts to revise up their forecasts for growth and the latest median polled by Reuters is for an annualised 2%.
The closely watched estimate of GDP from the Atlanta Federal Reserve is projecting an outcome of 2.7%, a huge turnaround from a few weeks ago when it was at 0.5%.
“Today’s GDP print in the US has become even more important given the recent move higher in the dollar,” said Mohammed Kazmi, portfolio manager at UBP. “The dollar’s strength is beginning to gain investor attention and has led to vulnerable emerging markets, such as Argentina and Turkey, appearing exposed once again, while it also seems to be a headwind for US risk markets in which momentum is stalling, despite decent first-quarter earnings thus far.”
Tightening at an end?
The GDP release also sets the stage for a US Federal Reserve interest rate decision next week, where investors will try to anticipate how the US central bank will react to mostly resilient indicators of late.
Yet the rebound has not been mirrored in inflation, which remains subdued across much of the developed world, prompting a host of central banks to turn dovish.
Just this week, central banks in Sweden and Canada have backed off plans to tighten, while the Bank of Japan tried to dispel doubts about its accommodative stance by pledging to keep rates at super-low levels for at least one more year.
On Thursday, European Central Bank (ECB) vice-president Luis de Guindos opened the door to more money-printing if needed to boost inflation in the eurozone.
Rate cuts look much likelier in Australia and New Zealand after recent disappointingly weak inflation reports.
The Federal Reserve holds a policy meeting next week and is expected to re-affirm its patient stance. A Reuters poll of analysts published on Thursday found that most believed the Fed was done with tightening altogether.
“Majors depreciate when the global economy improves and also when global investors become more risk-averse,” said UBS strategists in a note. Central banks are done tightening policy, according to a majority of economists polled by Reuters, with the growth outlook wilting across developed and emerging economies along with scant prospects for a surge in inflation.
“Only a benign environment where global central banks tread water and yield differentials remain static (that is, the status quo) would be dollar-supportive.”
Elsewhere in currencies, the euro was off 1% for the week as eurozone economic figures continued to disappoint, though it was 0.04% higher on the day at $1.1135. In commodity markets, spot gold was 0.3% firmer at $1,280.48 an ounce.
Oil prices fell on Friday as the market retreated slightly from its strongest bull run in at least a year amid efforts to resume Russian oil flows that were interrupted by contamination.