Global stocks climb, dollar dips as traders price accommodative Fed

FILE PHOTO: The London Stock Exchange Group offices are seen in the City of London, Britain - REUTERS

LONDON (Reuters) - Global stocks rose to their highest in five months and the dollar dipped on Monday as traders began to price in an accommodative stance from the U.S. Federal Reserve at its policy meeting this week.

European markets extended a run of gains, helped by a jump in shares in German lenders Deutsche Bank and Commerzbank after they confirmed over the weekend they were in talks to merge. The pan-European STOXX 600 index rose 0.3%, hitting a five-month high.

Britain’s FTSE 100 outperformed its European peers with a 0.3% gain at the start of a week that could see parliament voting for a third time on Prime Minister Theresa May’s Brexit plan after ruling out a near-term no-deal exit.

MSCI’s All-Country World index, which tracks shares in 47 countries, was up 0.3% on the day. The index set a five-month high, hitting its highest since October 10.

With a signs of global economic growth slowing, traders were focused squarely on the Federal Reserve, which meets on Wednesday for further cues about the path of U.S. interest rates.

In particular focus will be the weather policymakers will have sufficiently lowered their interest rate forecasts to more closely align their “dot plot”, a diagram showing individual policymakers’ rate views for the next three years.

Also expected is more detail on a plan to stop cutting the Fed’s holdings of nearly $3.8 trillion in bonds. The two-day meeting ends with a news conference on Wednesday.

Yields on three and five-year Treasuries are dead in line with the effective Fed funds rate, while futures imply a better-than-even chance of a rate cut by year end.

The dollar index was lower 0.1% at 96.486, after having shed 0.7% last week.

E-mini futures for the S&P 500 were higher by 0.06%, indicating a positive open on Wall Street later in the day.

Data on Friday showed U.S. manufacturing output fell for a second straight month in February and factory activity in New York state hit nearly a two-year low this month, further evidence of a sharp slowdown in economic growth early in the first quarter.

A marked decline in Treasury yields has dragged on the dollar, leaving it at 111.53 yen from a top of 111.89 on Friday.

The euro was holding at $1.13435, well up from the recent trough of $1.1174 which was hit when the European Central Bank took a dovish turn of its own.

The pound was down 0.4% at $1.3246 as lawmakers cast doubt on British Prime Minister Theresa May’s third attempt to get parliament to back her Brexit deal.

May has only three days to win approval for her deal to leave the European Union if she wants to go to a summit with the bloc’s leaders on Thursday with something to offer them in return for more time.

In commodity markets, spot gold rose 0.2% to $1,303.68 per ounce.