World stocks firm, dollar slips against euro as markets await Fed
US equities pushed higher on Tuesday as investors grew more confident that the Federal Reserve would temper its recent statements on the future reduction of US monetary support, while still pointing to economic improvement.
The dollar was down 0.2 per cent against a basket of currencies, while the euro rose 0.3 per cent to $1.3406, boosted by improved German investor sentiment.
The Federal Reserve meeting, which started Tuesday, has taken on greater significance since Fed chairman Ben Bernanke said in May stimulus plans could be scaled back if the US economy gains momentum. The Fed will issue its policy statement on Wednesday, followed by a news conference by Bernanke.
Last month's comments threw a wrench in the stock market's rally, caused US benchmark bond yields to rise and hurt the dollar. The Fed is currently buying $85 billion in bonds monthly to keep borrowing costs low and boost demand.
Wall Street rose on Tuesday, led by growth-oriented stocks that would be expected to do well in an expanding economy. European shares ended flat. US bond yields were marginally higher, with the benchmark 10-year Treasury trading at 2.20 per cent, though that is lower than earlier in June.
Data on Tuesday showed US consumer prices rose in May and a gauge of underlying price pressures showed signs of stabilization after a long decline. That could be encouraging to Fed policymakers who would like to see stronger inflation.
The benchmark S&P 500 has surged 15 per cent since the start of 2013, but the rally in stocks is expected to decelerate in the latter part of the year, putting equities only modestly beyond their record highs, a Reuters poll found.
European shares provisionally ended down 0.1 per cent. Stocks found some support in a rise in investor sentiment in Germany that suggested Europe's largest economy is on the slow road to recovery. But it was only a brief distraction ahead of the Fed.
A measure of global stock markets was up 0.3 per cent.
The dollar gained against the Japanese yen, gaining 0.7 per cent to 95.18 yen.
HSBC strategist Daragh Maher expects Mr Bernanke to emphasise that any scaling back of Fed stimulus will depend on data.
"While this should be generally dollar bullish, if volatility rises, it could see dollar/yen lose ground," he said.
Treasuries were choppy, with bond investors focused on the Fed. Benchmark 10-year Treasuries were last down 3/32 in price to yield 2.1872 per cent. Thirty-year bonds cut early declines to add 1/32 in price to yield 3.35 per cent.
The US economic data helped boost Brent crude above $106 a barrel as it eased some concerns over what the Fed may signal. Brent later trimmed gains and was recently up 11 cents to $105.58, while US oil was up 24 cents at $98.01.
"If the Fed takes away the stimulus, it will boost the dollar and potentially push oil prices down, but a lot has been priced in already," said Simon Wardell, analyst at Global Insight.
"The Fed will try to do it as gradually as possible to avoid a shock so the impact on oil will probably be minimal," he further said.
Copyright @ Thomson Reuters 2013