European stocks climbed with U.S. equity-index futures as speculation the Federal Reserve may raise interest rates as soon as next month underpinned the dollar. Copper fell and crude oil rallied.
The Stoxx Europe 600 Index rose 0.8 percent by 8:18 a.m. in London and U.S. index futures increased 0.3 percent as the MSCI Asia Pacific Index dipped 0.2 percent. The Bloomberg Dollar Spot Index extended gains, rising 0.2 percent as yields on 10-year debt from Australia to Japan climbed. Oil rose a second day, while copper resumed losses.
Traders boosted bets on a September rate hike in the U.S. after Federal Reserve Bank of Atlanta chief Dennis Lockhart said he would only endorse putting it off should there be a significant deterioration in economic data. Oil’s rebound steadied commodity markets, quelling losses among energy and mining stocks amid a swag of services industry data from China, Japan and the U.S.
“The overseas environment will continue to be a drag on the market,” Hiroichi Nishi, a manager at SMBC Nikko Securities Inc. in Tokyo, said. “Lockhart’s comments made the market wary of rate hikes once again. Caution toward the Chinese economy continues to weigh on the market as well.”
Bloomberg’s dollar gauge, which tracks the greenback against 10 major peers, rose a third day to the highest since March. The Malaysian ringgit slid 0.6 percent, while the Korean won resumed losses, falling 0.7 percent. The Thai baht was down 0.3 percent before a rate decision Wednesday that’s projected to keep benchmark borrowing costs unchanged.
‘High Bar’
The offshore yuan slipped after the International Monetary Fund said China’s currency trails its global counterparts in major benchmarks and “significant work” in analyzing data is needed before deciding whether to grant it reserve status.
Lockhart told the Wall Street Journal there’s “a high bar right now to not acting, speaking for myself.” While talking up the economy’s recovery from a first-quarter slump, the central banker acknowledged the downward pressure on inflation exercised by the drop in oil prices. Much anticipated monthly payrolls data is due later this week as the Fed mulls whether to raise rates for the first time since 2006.
The comments saw an uptick in bets on a September increase, with the probability of a hike at the Fed’s next meeting at 48 percent, based on the assumption that the effective Fed funds rate will average 0.375 percent after the first increase. That compares with the 40 percent chance priced in at the end of last week.
Bond Yields
“Lockhart is both a centrist and a 2015 voter on the FOMC, making this assertion important,” Raiko Shareef, a markets strategist at Bank of New Zealand Ltd., wrote in a client note, referring to the Federal Open Market Committee which sets policy. “It changes the burden of proof -– data no longer has to improve materially for the Fed to move in September. It simply has to avoid worsening.”
Yields on Japanese bonds due in a decade added one basis point, or 0.01 percentage point, to 0.395 percent after Lockhart’s comments sent Treasuries tumbling from a two-month high. Similar maturity Australian notes yielded 2.803 percent, up seven basis points.
Some sense of calm returned to commodities markets following their slump to a 13-year low on Monday. The Bloomberg Commodity Index increased 0.3 percent after rallying 0.8 percent last session, halting a three-day retreat.
Oil Advances
West Texas Intermediate advanced a second day, up 1 percent at $46.20 a barrel. U.S. crude inventories probably decreased a second week through July 31, according to a Bloomberg survey before an Energy Information Administration report Wednesday. Oil fell the most since 2008 last month amid speculation a global glut will persist as the U.S. pumped near the fastest rate in three decades.
Copper in London fell 0.6 percent to $5,203.50 a metric ton, declining for the fourth day in five. Prices are giving up gains made on Tuesday after China’s plan for more stimulus helped spark rebounds among industrial metals.
Gold slipped 0.1 percent to $1,087.05 an ounce as the dollar strengthened. Soybeans in Chicago rose 0.6 percent and wheat advanced 0.6 percent.
Japan’s Topix index rose 0.4 percent. Medical device maker Terumo Corp. surged 12.9 percent after a profit jump and saying it will buy back shares. Shares in construction company Kajima Corp. also increased after it reported net income more than doubled.
Chinese Shares
Shares in China dropped for the fourth time in five days as turnover waned and concern grew unprecedented government intervention is driving away investors.
The CSI 300 Index slumped 2.1 percent and the Shanghai Composite Index dropped 1.7 percent. The latter climbed for only the second time in eight days Tuesday after local authorities imposed restrictions on short selling, their latest salvo in a bid to stem gyrations in the stock market.
Australia’s S&P/ASX 200 Index lost 0.4 percent. Fortescue Metals Group Ltd. jumped as much as 10.3 percent after people familiar with the matter said Hebei Iron & Steel Group Co. and Tewoo Group Co. have approached the iron ore producer about acquiring a stake in its infrastructure assets.
source: Bloomberg
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