World shares and risk assets rallied and the dollar backed off highs on Thursday, after the Federal Reserve flagged a rate hike next month, but also an intention to take things slow and steady after that. The MSCI Asia Pacific Index climbed 1.3 percent, the Hang Seng Index advanced 2.1 percent in Hong Kong while Japan’s Topix index advanced 1.2 percent as the yen extended Monday’s decline against the dollar.
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Heightened security jitters were not seen as having a meaningful negative impact on the market.
At 0900 GMT, the benchmark Stoxx Europe 600 index and France’s CAC were up 1%, while Germany’s DAX was 1.2% higher.
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The Japanese Nikkei 225 was trading at 19,892.46, up 1.24%, despite a disappointing report on exports and the fact that the Bank of Japan at its regular policy meeting left its policies unchanged.
“To me, it confirms the December liftoff – but you’re going to [interpret] what you want”, said Win Thin, global head of emerging market currency strategy at Brown Brothers Harriman. While two-year yields US2YT=RR rose 3 basis points those on 30-year paper US30YT=RR actually dipped a basis point. Against a basket of currencies the dollar dipped 0.4% and away from a seven-month peak.
“If the Fed is successful in convincing investors that the up move in rates will be very gradual, it would be less favorable for the dollar, particularly against risk currencies which will benefit from the tailwind from accommodation elsewhere”, said Todd Elmer, a Singapore-based currency strategist at Citigroup Inc. The dollar also eased against the yen to 123.09, after touching a three-month peak of 123.67. The New Zealand and Australian dollars both rose nearly 1 percent and the euro around half a percent to push back above $1.07.
The outlook for a USA rate hike boosted the dollar, although the euro recovered to $1.0688 after hitting a seven-month low at $1.0617 on Wednesday.
US bond markets were impressed by a clear sign that a majority at the Fed think a rate rise in December may now be “appropriate”, sending USA short-term interest rates higher. The ECB will release the minutes of its latest policy meeting later in the session, which investors will scan for clues to what the central bank might do in December.
“Gordon eyed the euro’s March 2015 low of $1.046 as the next level of support”, according to CNBC.
In commodity markets, the high dollar and worries about Chinese demand saw zinc, copper, lead and nickel prices near their lowest in five to seven years.
Oil prices rebounded a tad after data showed an unexpected stockpile draw for last week, though they remained not far from 6-1/2-year lows hit in August on persistent concerns about a global supply glut.
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Brent crude oil rose 0.6% to $44.42 a barrel.
