Stocks

World stocks ride out oil rout as focus turns to Fed

Reuters London | Updated on July 17, 2018 Published on July 17, 2018

MSCI's world equity index, which tracks shares in 47 countries, was broadly unchanged, with energy companies in Europe and Asia recovering ground from early losses caused by the previous day's turbulence in commodity markets.

Dollar dips ahead of Fed testimony; Most other markets calm, awaiting Powell

World stocks recovered some ground on Tuesday as oil prices stabilised, while the dollar edged lower and most other markets were subdued before Federal Reserve Chair Jerome Powell testifies to the US Congress.

MSCI's world equity index, which tracks shares in 47 countries, was broadly unchanged, with energy companies in Europe and Asia recovering ground from early losses caused by the previous day's turbulence in commodity markets.

Brent crude initially fell for a second day after a 4 per cent slump on Monday, as Libyan ports reopened and traders eyed potential supply increases by Russia and other producers, but they recovered to trade up 0.5 per cent.

Europe's Stoxx 600 was up 0.1 per cent. MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.4 per cent, snapping two days of gains amid concern over growth in China. In Europe, technology stocks fell 0.4 per cent after US tech giant Netflix missed estimates for growth in subscribers.

“It's been a fairly sluggish and unexciting start to the week for markets. Whether things get more interesting or not probably depends on what Fed Chair Jerome Powell has to say when he testifies today in front of the Senate Banking Committee,” said Craig Nichol, a macro strategist at Deutsche Bank.

In currencies, the dollar index fell 0.1 per cent against a basket of six major currencies to 94.409. The index shed 0.25 per cent on Monday, nudging away from a two-week high of 95.241 on Friday.

Powell time

Powell will testify on the economy and monetary policy before the US Senate Banking Committee on Tuesday and the House of Representatives Financial Services Committee on Wednesday. He is likely to reiterate the Fed's stance towards gradual monetary policy tightening. Markets will focus on his views on recent trade tensions.

“In short, we expect the chairman to signal optimism on growth and inflation, consistent with continued 'gradual' tightening,” wrote Jim O'Sullivan, chief economist at High Frequency Economics.

“He will undoubtedly acknowledge some downside risks associated with the administration's trade warmongering, but he will likely try to avoid sounding critical of the administration.”

Sino-US trade conflict

Even before Powell's testimony, traders said the Sino-US trade conflict was keeping a keeping a lid on equity prices and currencies in both countries. The Chinese government had said on Tuesday it would hit its 2018 growth target, a day after it reported slower growth in the second quarter and the weakest expansion in factory activity in June in two years.

On Tuesday, economists at UBS lowered their estimates for Chinese gross domestic product to take into account trade war escalation, warning clients the country's currency is likely to weaken. Chinese stocks were among the biggest losers in Asia on Tuesday, falling 1.7 per cent.

Trading in government bonds was largely subdued ahead of Powell's testimony. Euro zone government bond yields across the bloc inched lower by 0.5 to 2 basis points, with investors unwilling to push yields any higher before Powell testifies.

Published on July 17, 2018
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