Actions and dollar rise as Fed officials downplay inflation concerns
By Chibuike Oguh
NEW YORK (Reuters) – Global equity markets advanced and the US dollar rallied against major currencies on Wednesday for the first time this week as Federal Reserve officials continued to downplay the outlook for rising inflation .
Fed vice chairman for oversight Randal Quarles signaled the US central bank’s plan to open talks on easing its bond buying program as the economy advances and prices increase. On Tuesday, Vice President Richard Clarida said the Fed could curb inflation and stage a “soft landing” without derailing the economic recovery.
On Monday, Fed Governor Lael Brainard and James Bullard, Chairman of the St. Louis Fed, reiterated the accommodative monetary policy.
The dollar index rose 0.392%, while benchmark 10-year US Treasury yields slipped to 1.557%, from 1.564% on Tuesday night.
“The Fed has really pushed its take on inflation, but when it comes to cutting bonds, investors are worried about allowing the economy to heat up,” said Charlie Ripley, senior investment strategist at Allianz Investment Management.
The largest MSCI index of global equities rose 0.18% to 708.52. European stocks remained stable below a record high set on Tuesday.
Comments from several Fed officials reflect a change in tone at the central bank. A month ago, Fed Chairman Jerome Powell said it was “not yet” time to consider a discussion of cutting policies or slowing the pace of asset purchases. More recently, policymakers have recognized that they are closer to debating when to reduce crisis support to the US economy.
On Wall Street, all three major indices closed higher on consumer discretionary, communications and financials.
The Dow Jones Industrial Average rose 0.03% to 34,323.05, the S&P 500 0.19% to 4,195.99 and the Nasdaq Composite rose 0.59% to 13,738.00.
“The Fed always puts a lot of liquidity in the system and when the economy is spinning it makes a lot of people think they might be making a policy mistake,” Ripley said.
Overnight in Asia, the largest MSCI index of Asia-Pacific stocks outside of Japan rose 0.45% to more than two-week highs, while the Tokyo Nikkei rose 0 , 3%.
Emerging market equities strengthened as figures of stronger economic growth in Mexico pushed the peso higher, raising hopes that the country is on its way to recovering from its sharpest economic contraction since the 1930s.
The MSCI Emerging Markets Equity Index rose 0.48%.
Gold prices fell below $ 1,900 an ounce, its appeal dampened by a rebound in the dollar and yields on US Treasuries.
Spot gold fell 0.17% to $ 1,896.06 an ounce after hitting its highest level since Jan. 8 at $ 1,912.50.
Oil prices stabilized on the upside as a drop in U.S. crude inventories raised expectations of improving demand ahead of the peak summer driving season, offsetting fears that a possible return of Iranian supply would lead to overabundance.
Brent stabilized 16 cents, or 0.3%, at $ 68.87 a barrel and U.S. West Texas Intermediate (WTI) crude stabilized 14 cents, or 0.2%, at 66. $ 21 per barrel.
(Reporting by Chibuike Oguh in New York; Editing by Will Dunham and David Gregorio)