Stocks advance as Fed week kicks off, gold drops

London - The bullish sentiment that stoked more Wall Street records on Friday carried through to the new week, with European and Asian shares rallying across the board. The dollar halted a two-day drop as investors prepare for the next Federal Reserve gathering, while gold fell as demand for havens faded.

The Stoxx Europe 600 jumped the most in almost a week as 10 of 19 sectors advanced, and US futures also rose after equities increased from Australia to Hong Kong. The gains follow the S&P 500 Index’s break through the 2 500 level for the first time last week and another record for the Dow Jones Industrial Average.

Gold and the yen fell, while oil gave up earlier gains. The pound slid before Bank of England Governor Mark Carney gives a speech in Washington and amid more bickering over Brexit.

After last week’s gains for risk assets - which owed more to a lack of bad news than to any positive catalysts - focus now turns to the Fed meeting this week.

While the central bank is widely expected to keep the benchmark rate unchanged, close attention will be paid to the chance of an increase later in the year and on whether officials will announce the start of a reduction in the bank’s $4.5trn balance sheet.

“QE certainly is over; QT is about to begin,”  Anthony Crescenzi, Pimco portfolio manager, told Bloomberg TV’s Francine Lacqua and Tom Keene. “That’s quantitative tightening.

It’s illogical to think that quantitative easing would help markets but quantitative tightening won’t hurt. It seems markets are taking the Fed’s quantitative tightening in stride. It will be like Fed Chair Janet Yellen has said, like watching paint dry.”

In the background, geopolitical risks refuse to dissipate. The US seeks a peaceful resolution to the tension with North Korea, but is prepared to use military force if diplomatic efforts fail to end the nuclear standoff, Secretary of State Rex Tillerson told CBS. The comments were made ahead of US President Donald Trump’s first address before the United Nations on Tuesday.

What to watch out for this week: 

• Home construction and sales of previously owned properties are the highlights of the week’s US economic calendar.

• UK Prime Minister Theresa May has reshuffled her team of top Brexit negotiators in preparation for talks entering a new phase.

• The BoJ is predicted to stand pat on Thursday and probably won’t reveal when it’ll unwind stimulus, but could signal determination to keep the yield curve under control.

• Indonesia, the Philippines and South Africa are among countries settling monetary policy. 

• The final days of Germany’s parliamentary campaign will play out before the September 24 vote.

• New Zealand goes to the polls on September 23.

Here are the main moves in markets:

Stocks

• The Stoxx Europe 600 Index gained 0.3% as of 8:50 am New York time, the highest in almost six weeks.

• The MSCI All-Country World Index increased 0.2% to the highest on record.

• Futures on the S&P 500 Index climbed 0.1% to the highest on record.

• The MSCI Emerging Market Index climbed 0.9% to the highest in more than six years.

Currencies

• The Bloomberg Dollar Spot Index climbed 0.1%.

• The euro increased 0.1% to $1.1962.

• The British pound declined 0.4% to $1.354.

Bonds

• The yield on 10-year Treasuries increased one basis point to 2.21%, the highest in more than a month.

• Germany’s 10-year yield gained two basis points to 0.45%.

• Britain’s 10-year yield decreased less than one basis point to 1.31%, the first retreat in more than a week.

Commodities

• Gold dipped 0.6% to $1 312.05 an ounce, the weakest in almost three weeks.

• West Texas Intermediate crude declined 0.3% to $49.75 a barrel.

Asia

• The Kospi index climbed 1.4% and Australia’s main gauge was up 0.5% at the close.

• The Hang Seng Index in Hong Kong gained 1.3%.

• The Shanghai Composite Index was 0.3% higher.

• Japan markets are shut for respect-for-the-aged day.

• The Japanese yen fell 0.5% to 111.41 per dollar, the weakest in almost eight weeks.

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