Global Markets Shares near record highs after Fed reassurances

Global Markets Shares near record highs after Fed reassurances
Business & Markets 2013
Written by Reuters
Thursday, 18 July 2013 20:33

* Dollar, shares grind higher post-Bernanke

* Wall Street expected to open little changed

* Yen under pressure ahead of Japan Upper House elections

* Bunds track minor gains in U.S. Treasuries to hit 5-week high

By Marc Jones

LONDON, July 18 (Reuters) - Reassurances that U.S. stimulus will be unwound with care left world stocks near an all-time high on Thursday, while the yen buckled as elections in Tokyo at the weekend refocused attention on Japan's radical economic masterplan.

Wall Street was set to open little changed near record levels, with investors eyeing Federal Reserve Chairman Ben Bernanke's second day in Congress, a deluge of earnings plus closely-watched U.S. unemployment and business data.

Markets in Europe and Asia had enjoyed a largely relaxed day with risk-assets from stocks and southern euro zone bonds climbing alongside safe-haven German Bunds and gold.

Bernanke on Wednesday reiterated his recent assurances that the Fed will only start phasing out its huge monetary support programme once it is sure the U.S. economy is strong enough to stand on its own feet. [ID:

The dollar was up 0.1 percent ahead of the Wall Street restart having been steady for most of the day, while some upbeat earnings helped the broad FTSEurofirst 300 share index consolidate its 8 percent rise of the last month.

Markets are also awaiting a meeting in Moscow of G20 finance ministers for signs of an orchestrated approach to the end of U.S. money-printing, which could help defuse volatility in global markets.

The G20, which meets on Friday and Saturday, includes many of the developing countries that have been at the sharp end of the dollar's surge since Bernanke first signalled the fed would roll back its bond buying in May.

Mouhammed Choukeir, Chief Investment Officer of fund manager Kleinwort Benson, said that while Bernanke's comments would help markets for now, the recent nervousness was likely to return.

"QE (quantitative easing) is here to stay a little longer, but it has to stop one day. The volatility in the past few weeks has perhaps been a glimpse of what is to come," Choukeir said.

"Where a QE world is a world in which risk assets (equities) go up and safe havens (government bonds and gold) also go up, it would appear that a new post-QE world is one where risk assets go down and safe havens also go down."

YEN DROOPS

With little new expected from Bernanke later, currency market were starting to focus on Sunday's Upper House elections in Tokyo which are expected to strengthen the hand of Prime Minister Shinzo Abe and his radical stimulus strategy.

The dollar rose 0.6 percent versus the yen as it climbed back above 100 yen, while the euro hit a seven-week high of 131.45 yen against the Japanese currency. Japan's Nikkei, a beneficiary of a weak yen, rose 1.3 percent.

'Abenomics', as Abe's $1.4 trillion masterplan is known, has caused a 14 percent drop in the yen this year. Ian Stannard, head of European FX strategy at Morgan Stanley, said he expected further falls once the Fed firms up is support withdrawal plans.

"The market is of the view the Abe administration will come out of this very well, so post-election it will be an interesting time because we could see the rhetoric around the reform plans picking up," Stannard said.

"If this is the case, we will start to see the yen coming under pressure again."

PERIPHERAL VISION

In debt markets, benchmark German Bunds tracked minor Bernanke-fuelled gains overnight by U.S. Treasuries to hit a five-week high.

A no confidence vote against Portugal's ruling coalition later in the day turned the focus to peripheral euro zone debt.

The motion proposed by a minor party is likely to fail, but markets will be on the lookout for any signals sent by the three main parties, which are holding talks on a broad deal to keep the country's bailout programme on track.

Spain and France both saw smooth bond auctions on Thursday despite a tougher backdrop, with Spain's prime minister fighting a corruption scandal and France having just lost its last triple-A sovereign credit rating from a major ratings agency.

Commodities, meanwhile, were mixed, with oil slightly lower, growth-attunded copper flat but gold a tad higher at $1,282 an ounce as the stronger dollar and U.S. stimulus debate pulled investors in different directions.

"The market is today stabilising as there is no more expectations for an imminent QE3 end," said Commerzbank gold analyst Eugen Weinberg. "We don't expect any strong increase in the short term," he added however.