European shares fall, dollar edges up, investors wait for dovish Fed hints
European shares opened lower on Thursday and the dollar was slightly higher, as investors focused on the U.S. Federal Reserve Chair’s speech at the virtual Jackson Hole conference later in the session.
Wall Street hit new record highs on Wednesday and the MSCI world share index also rose to its highest ever, with the endless supply of cheap cash from central banks pushing up big-cap tech companies.
But the rally petered out in the Asian session, with an element of caution coming from the United States sanctioning China over military action in the disputed South China Sea.
The MSCI world equity index .MIWD00000PUS, which tracks shares in 49 countries, was broadly flat on the day at 0723 GMT, while the MSCI’s main European Index .MSER was down 0.1%.
The pan-European STOXX 600 was down 0.1%, but still close to two-week highs .
Market focus is now squarely on the virtual Jackson Hole conference, where Federal Reserve Chair Jerome Powell is expected to drop policy hints when he speaks at 0910 EDT (1310 GMT).
“While we expect the Fed to shy away from more radical easing measures, such as explicit controls on government bond yields, we believe Powell will likely outline other dovish measures,” Mark Haefele, chief investment officer at UBS Global Wealth Manager, wrote in a note to clients.
“These could include a move toward average inflation targeting, giving the central bank more leeway to allow inflation to overshoot the 2% target while keeping rates pegged close to zero,” he said.
The Fed has already cut interest rates to zero, started bond-buying and approved a massive lending programme.
Its balance sheet has expanded by as much as $3 trillion since the start of the pandemic – far more than that of the European Central Bank and Bank of Japan.
The dollar ticked up after two consecutive days of falling. Against a basket of currencies, it was up 0.1% at 92.955 =USD.
The riskier Aussie AUD=D3 and Kiwi dollars NZD=D3 gained versus the U.S. dollar, while the euro was slightly lower at $1.1823 EUR=EBS.
Australia’s Victoria state — epicentre of the nation’s second wave of COVID-19 infections — reported its lowest one-day rise in new cases in nearly two months.
The offshore Chinese yuan CNH=EBS hit a 7-month high versus the dollar, with the market apparently undeterred by the rising tensions between China and the United States.
European bond yields fell, with Germany’s benchmark 10-year Bund yield at -0.438% DE10YT=RR.
Oil prices were mixed, with Brent crude LCOc1 futures for October, which expire on Friday, up 0.2% at $45.73 a barrel by 0742 GMT. U.S. West Texas Intermediate (WTI) crude CLc1 futures were down 0.1% at $43.34 a barrel.
Hurricane Laura, a massive hurricane in the Gulf of Mexico, has pushed the market higher this week, but the storm is not expected to affect supplies much because oil and product inventories are high.
Gold prices fell as investors took profits before Powell’s speech, with spot gold down 0.5% to $1,944.55 per ounce by 0745 GMT.
Also in focus is the Republican National Convention. U.S. President Donald Trump will speak live from the White House on Thursday.
