Friday, 10 October 2014 12:33
Reuters: Asian shares surged and the dollar skidded on Thursday after minutes of the US Federal Reserve’s latest policy meeting showed concerns about downside risks of a stronger dollar and the global economy.
European shares were expected to take their cues from the gains, with financial spreadbetters predicting Britain’s FTSE 100 to open 67 to 70 points higher, or as much as 1.1%; Germany’s DAX to rise 126 to 131 points, or as much as 1.5%; and France’s CAC 40 to gain 60 to 62 points, or as much as 1.5%.
“We are calling the major Bourses firmer as investors react to the rally through US and Asian trade,” IG market strategist Stan Shamu wrote in a note.
“Key markets such as the DAX have tested some significant support levels recently and it seems this rally has arrived just in time to relieve the stress,” he said.
But gains could be tempered after data released on Thursday underscored weakness in Europe’s largest economy. German exports slumped by 5.8% in August, their biggest fall since the height of the global financial crisis in January 2009.
MSCI’s broadest index of Asia-Pacific shares outside Japan, which in the previous session, touched its lowest level since March, was up about 1.2% in late afternoon trade. But Japan’s Nikkei share average skidded 0.8% as the dollar sank against Japan’s currency.
“Fed officials have concerns on the impact of a strong dollar, which undermines the scenario held by some that Japanese shares will benefit from further strength in the dollar against the yen,” said Masayuki Doshida, a senior market analyst in Tokyo for Rakuten Securities.
The minutes of the Fed’s 16-17 September meeting showed officials are struggling with how to come to grips with the dual threats of a stronger dollar and a global slowdown as they seek an eventual exit from low interest rates.
“The overall tone of the minutes was that the Fed will manage its policy so as not to damage a fragile economy, paying attention to various downside risks,” said chief fixed income strategist at Daiwa Securities in Tokyo, Tohru Yamamoto,
US interest rate futures reacted to the minutes, with June 2015 eurodollar interest rate futures hitting a contract high as traders scaled back expectations that the Fed will raise rates by June.
The rate-sensitive two-year US Treasury note yield hit a seven-week low of 0.444%. The 30-year bond yield dropped to a 17-month low of 3.039%.
On Wall Street, US stocks soared, with major indexes posting their biggest one-day jumps of 2014, reversing falls earlier in the session to their lowest levels since August.
In the currency market, where the dollar had gained sharply over the past three months on the perception that higher US rates down the road will attract more funds, investors rushed out of dollar-buying positions.
“Last week it was a pretty clear-cut buy the dollar scenario,” senior trader for OANDA in Singapore, Stephen Innes said but this week “we’re seeing a lot of two-way action”.
The dollar’s index against a basket of six major currencies slipped as low as 85.108, its lowest level in about two weeks, moving away from a four-year high of 86.746 hit on Friday. It last stood at 85.223, down about 0.1%.
As the dollar wilted, the euro recovered to a two-week high of $ 1.2760, despite a run of weak German data earlier this week capped off by the latest figures. The euro last stood at $ 1.2737, up slightly on the day.
Against the yen, the US currency traded at 107.85 yen, down about 0.2% on the day and not far from a three-week low of 107.75 yen touched on Wednesday.
The British pound stood at $ 1.6165, steady on the day and holding above an 11-month low of $ 1.5943 on Monday, ahead of the Bank of England’s policy announcement later in the session. The bank is expected to keep rates steady near record lows.
In commodities trading, US crude oil prices rebounded from a 1-1/2-year low hit overnight, adding about 0.2% to $ 87.60 per barrel, while Brent crude, the European benchmark, rose off Wednesday’s two-year low to gain 0.2% on the day to $ 91.57. A weaker dollar makes dollar-denominated assets cheaper for holders of other currencies
Gold climbed to its highest in about two weeks as the dollar lost ground, with spot gold rising about 0.4% to $ 1,226.40 an ounce.