Picture: REUTERS/PETER NICHOLLS
Picture: REUTERS/PETER NICHOLLS

London — World stock markets and the dollar rose on Friday as investors looked to a speech by US Federal Reserve chair Jerome Powell for clarification on whether the US central bank remains on course to deliver another interest rate cut in next month.

Suggesting markets remain broadly confident of further Fed easing, European stocks rebounded from the previous day’s falls, with the pan-European Stoxx 600 index gaining as much as half a percent in early deals. Britain’s FTSE 100 index was up 0.64%.

MSCI’s all country world index, which tracks shares across 47 countries, was up 0.1% and set to break a three-week losing streak. Earlier in Asia, MSCI’s broadest index of Asia-Pacific shares excludingJapan edged 0.3% higher and was up 1.0% for the week, on track to break a four-week losing streak. Japan’s benchmark Nikkei advanced 0.4% and Australian stocks added 0.3%.

The dollar rose 0.2% against a basket of peer currencies.

Powell is due to speak at 2pm GMT at a gathering of central bankers in Jackson Hole, Wyoming. 

While markets overwhelmingly expect the Fed to follow up its first rate cut in a decade with more stimulus at its meeting next month, some policy makers are not keen. Kansas City Fed president Esther George, who dissented against the decision to ease in July — for the first time since the financial crisis — and Philadelphia Fed president Patrick Harker, who said he “reluctantly” supported the cut, both said the US economy did not need more stimulus at this point.

Dallas Fed president Robert Kaplan said businesses had become much more cautious due to surprises on trade policy and he was “going to at least be open-minded about making some adjustment” if he saw continued weakness.

That has made Powell’s speech pivotal for markets as they look for any clues on future policy direction. “Judging by the minutes from the July meeting, the central bank seems content to sit on its hands, but it is worth remembering the US-China trade situation has intensified, and so has the unrest in Hong Kong, and that might prompt Powell to be a touch more dovish than he was in late July,” said David Madden, markets analyst at CMC Markets in London.

US stock futures were up 0.35%, pointing to gains on Wall Street later in the day.

In the US bond market, the two-year/10-year yield curve briefly moved back into inversion territory overnight, a shift that also occurred last week and hit financial markets amid worries that it presaged a sharp global downturn.

“There’s been no jaw-dropping news this week but we have had incrementally less bond-friendly news — the Federal open market committee minutes, the eurozone purchasing managers' indiciess, and Fed speakers in recent days that give the impression July was an insurance rate cut,” said John Davies, G10 rates strategist at Standard Chartered Bank.

“This has dragged the market away from speculating about a 25-50 basis points (bps) rate cut in September, to a discussion on a 25bps cut, to will they cut rates, so a bit more uncertainty has been injected into markets.”

Markets are, however, still pricing in a 98.8% probability of a 25bps cut on September 18.

Currencies

The euro eased marginally to $1.1073. A survey showing a surprise uptick in eurozone business growth for August was offset by trade war fears, knocking future expectations to their weakest in over six years.

The pound fell half a percent to $1.2195, reversing most of the gains made on Thursday after traders interpreted encouraging comments on Brexit from German Chancellor Angela Merkel to mean a solution to the Irish border problem could be found before Britain leaves the EU on October 31.

China’s yuan recovered some ground after hitting a nearly 12-year low. Spot yuan slid to as low as 7.0992 to the dollar, its weakest since March 2008. China’s central bank set the midpoint rate at 7.0572, its weakest level in eleven-and-a-half years but much stronger than traders had expected.

Washington labeled China a currency manipulator in August after a sharp slide in the yuan. Concern about China’s economy is growing because US tariffs on roughly $150bn of Chinese goods will take effect from September 1.

Oil prices weakened, with both Brent crude and US West Texas Intermediate (WTI) down 0.1%. Brent crude traded at $59.89 a barrel and WTI crude at $55.31.

Gold eased and was set for its worst week in nearly five months. Spot gold was down 0.2% at $1,495.60 an ounce.

Reuters