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Hong Kong - Stocks rallied around the world, commodities jumped and the dollar sank on speculation that a pick-up in the global inflation outlook won’t tempt the Federal Reserve to quicken the pace of monetary tightening.
The MSCI All Country World Index of equities headed for its biggest advance in almost four weeks as investors parsed earnings reports.
The Bloomberg Dollar Spot Index extended Monday’s retreat from a seven-month high after reports showed New York manufacturing unexpectedly shrank and US factory output barely grew.
The rand and South Korea’s won led gains in emerging-market currencies. The Bloomberg Commodity Index rose for a fourth day to the highest in a week, with oil and metals climbing.
“The market has clearly come to a stronger view that they will raise rates in December but that has very little influence on where rates are perceived to go in the longer term,” said Adam Cole, head of global foreign-exchange strategy at Royal Bank of Canada in London.
“In a more normal interest-rate cycle, if the market had moved to discount a December interest rate hike, it would probably have moved to discount three or four hikes next year and that’s simply not the case any more.”
While Fed fund futures indicate the probability of a rate increase by the December meeting has risen to 66%, from about 55% a month ago, data releases have signalled that there’s still reason for officials to be cautious.
The Bloomberg US ECO surprise index - which measures whether data have exceeded or fallen short of analysts’ estimates - fell below zero for the first time in two weeks.
Officials are still to form a consensus view to support a faster pace of tightening, with chair Janet Yellen last week pondering whether a “high-pressure economy” could reverse some of the damage done in the recession.
Stocks
The Stoxx Europe 600 Index rose 1.1% at 11:51. Miners led gains as commodity prices advanced. Italian banks propelled lenders higher, with Banca Monte dei Paschi di Siena jumping 6.5% after Il Sole 24 Ore reported that the board of directors will discuss a proposal to bolster the lender’s financial health from Corrado Passera, Italy’s former economic development minister.
Among stocks moving on earnings-related news:
Remy Cointreau added 6.7% after its sales growth beat estimates. Burberry tumbled 4.9% after reporting declines in its Asian business and worsening results from its wholesale unit. Continental lost 4% after the car-parts maker cut its annual profitability forecast following provisions for antitrust fines. Kuehne & Nagel International dropped 4.6% after reporting quarterly profit that missed estimates.
S&P 500 Index futures advanced 0.5%, after US equities fell 0.3% on Monday amid a slide in health-care companies. Data on inflation scheduled for release on Tuesday. Investors will also look to results from firms including Goldman Sachs and Johnson & Johnson for indications of the health of corporate America. Analysts forecast a 1.4% contraction in third-quarter profits for S&P 500 members.
The Hang Seng China Enterprises Index of mainland companies in Hong Kong rose 1.9%, its biggest advance since August 1. A report will show on Wednesday that Asia’s largest economy expanded 6.7% in the three months through September, the same as in the previous two quarters, according to the median estimate of analysts surveyed by Bloomberg.
The Philippine Stock Exchange Index climbed 2.9%, the most in five months. President Rodrigo Duterte starts a four-day trip to China on Tuesday, and there’s optimism it will yield investment deals and boost tourism, said James Lago, head of research at PCCI Securities Brokers in Manila.
Currencies
The Bloomberg Dollar Spot Index, which tracks the US currency against 10 major peers, declined 0.3%.
“The dollar has struggled to gain upside momentum today because of further evidence that the Fed’s tightening cycle will be very gradual,” said Elias Haddad, a senior currency strategist at Commonwealth Bank of Australia in Sydney.
The pound rose 0.6% to $1.2253 as the Office for National Statistics said the annual inflation rate accelerated to 1% last month, from 0.6% in August. That’s above the 0.9% rate forecast by economists and is the highest since 2014.
The New Zealand dollar climbed 0.9% after the country’s consumer prices rose in the last quarter faster than economists predicted, a reading some analysts said may weaken the case for interest-rate reductions beyond November.
The Australian dollar strengthened 0.7% and touched a two-week high. Reserve Bank of Australia Governor Philip Lowe said on Tuesday that trying to revive inflation too quickly could threaten financial stability by inciting a new round of borrowing by heavily indebted consumers.
He spoke before the release of minutes from the RBA’s last policy meeting, which showed economic expansion was forecast to continue at a moderate pace.
The MSCI Emerging Markets Currency Index rose 0.4%as the rand climbed to a one-week high. The won and Mexican peso both strengthened 0.8%, followed by gains of at least 0.5% in Russia’s rouble, Thailand’s baht and the Philippine peso.
Commodities
Crude was up 0.9% at $50.40 a barrel in New York, after slipping 0.8% in the last session. The price has fluctuated near $50 for most of this month amid skepticism that the Organization of Petroleum Exporting Countries will implement a September 28 agreement to reduce supply. An OPEC committee will meet later this month to try to resolve differences over how much individual members should pump.
Gold rose 0.5% in London trading to $1 262.29 an ounce while silver, platinum and palladium all added more than 0.7%. Copper gained 0.6% to $4 705 a metric ton, with all six main industrial metals traded on the London Metal Exchange advancing.
READ: Gold climbs as dollar weakens on Fed uncertainty
UK day-ahead natural gas rose an 11th day, buoyed by forecasts for cooler-than-normal temperatures. The contract is in the longest rising streak in at least nine years, according to broker data compiled by Bloomberg going back to 2007.
On the Chicago Board of Trade, soybeans gained 0.4% to $9.825 a bushel, touching the highest since September 21.
Bonds
The yield on Treasuries due in a decade was little changed at 1.77%, after dropping three basis points the previous day.
Longer-dated notes have slumped this month amid concern inflation is gathering pace and Tuesday’s data are forecast to show American consumer prices increased 1.5% in September from a year earlier, the fastest pace in almost two years.
This month’s selloff in Treasuries has had knock-on effects on bond markets across much of the world. Taiwan’s 10-year bond yield increased by eight basis points to 0.9% on Tuesday, the biggest gain in three years.
Germany’s 10-year bond yield was little changed at 0.059%, while that on similar-maturity UK gilts was at 1.13%, after rising 10 basis points over the previous two days.
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