Global markets off record highs, dollar buoyant

London/Sydney — Global shares hovered below record highs on Tuesday, while anticipation of tapering by the Federal Reserve kept investors cautious, which drove the dollar to a four-month high versus the euro.

Markets were looking ahead to US inflation numbers on Wednesday for further indications of when the world’s largest economy may start to withdraw stimulus after taper talk was strengthened by strong jobs data.

The MSCI’s All Country World Index, which tracks shares across 49 countries, was 0.1% up on the day, below record highs scaled last week.

European shares pushed to fresh record highs, with the Stoxx 600 0.2% stronger, extending gains to a seventh straight session, boosted by travel and leisure companies.

The MSCI’s broadest index of Asia-Pacific shares outside Japan was 0.4% higher after trading much of the day in the red as worries persisted about the spread of the Delta variant of Covid-19.

China on Monday reported more Covid-19 infections in what seems to be its most severe resurgence of the disease since mid-2020. Some cities added rounds of mass testing in a bid to stamp out infections.

Nasdaq futures added 0.1% and S&P 500 futures were flat.

Gold prices recovered after touching a four-month low on Monday when data showed that US job openings shot up to a record high in June and hiring also increased. Spot gold was up 0.3% at $1,733.20 an ounce

That followed Friday’s non-farm payroll report showing jobs increased by a larger-than-expected 943,000 in July.

Two Fed officials said on Monday that while the labour market still has room for improvement, inflation is already at a level that could satisfy one leg of a key test for the beginning of interest rate hikes.

“If markets rapidly decide to price in a move at the September FOMC meeting, look for another rally in the US dollar, a jump in US yields finally, and perhaps a tough day at the office for equities,” said Jeffrey Halley, Oanda’s senior market analyst in Asia—Pacific.

After strengthening on Friday and Monday, the dollar index reached a high of 93.02 during Asian trading hours on Tuesday — an 18-day high. 

The euro hit a new four-month low against the dollar, with the pair changing hands at $1.1726.

Analysts said that the greenback was getting support from strong US bond yields. The benchmark 10-year yield, which recorded its highest level since July 16 on Monday of 1.331%, was last at 1.317%.

In Europe, Germany's benchmark 10-year Bund yield was a touch lower on the day at -0.46% but six basis points above six-month lows of last week.

“Having swum from a very inflation-better opinion this year to a very disinflation view up to a week or so again, what we are we getting now again is another rotation into some of the reflation trades,” said Sean Darby, a Jefferies strategist in Hong Kong.

“The only thing that is different between now and the past 12 to 19 months is that it is likely to be accompanied by a stronger dollar.”

In addition to US inflation figures due on Wednesday, investors are also eyeing progress on a $1-trillion infrastructure package that still has to go through the Senate.

Reuters