The US dollar is trading at its highest in nearly a year, Treasury yields are firmer and gold is sliding as investors bring forward expectations for when the Federal Reserve may start raising interest rates, according fo FastFT.
But US and European stocks are shrugging off the perceived shift in monetary policy trajectory, with index futures showing the S&P 500 will start the new session barely changed at 1,985, just 3 points shy of record highs, while the FTSE Eurofirst 300 is opening flat, reports the FT’s Jamie Chisholm.
Not even disappointing news on China’s economy can seem to crack the bullish underpinning of developed country bourses, though it has hit Chinese equities and is putting pressure on industrial commodities.
Minutes from the Fed’s July policy meeting, published on Wednesday, were interpreted by many investors as more hawkish than expected, causing the market to shorten the odds on a rate rise by next summer.
The hawks at the Fed are “flapping their wings”, said Eric Green at TD Securities. “There is growing consensus that the Fed is moving faster in achieving its objectives than the post-meeting statement may have suggested”.
This has put pressure on fixed income assets, forcing up implied borrowing costs. The yield on the policy sensitive 2-year US bond is holding a two-week high at 0.47 per cent, while the 10-year Treasury yield, which hit a a near 14-month low of 2.30 per cent just a week ago, is up another 1 basis point to 2.44 per cent.
More clues on the timing of a rate rise may come in a speech by Fed chairwoman Janet Yellen on Friday at the Jackson Hole central bank conference.
Meanwhile, in contrast, worries about the eurozone economy sees equivalent maturity German paper yielding minus 1 basis point and 1.0 per cent respectively, a differential that continues to pressure the euro, which is off 2 pips to $1.3257, its weakest since mid September 2013.
