World stock markets cheered by healthy economy, dollar firm

Wednesday, 12 Jul, 2017

Investors are awaiting the start of the USA corporate earnings season and Federal Reserve Chair Janet Yellen's semi-annual testimony before Congress later in the week.

For now, the unease of an era ending that consisted of ultra-inexpensive money has given way to new optimism about the growth outlook globally with payrolls in the USA for June being stronger than had been expected. Hong Kong's Hang Seng added 1.5 percent, while the Kospi in South Korea climbed 0.6 percent.

ASIA'S DAY: Japan's Nikkei 225 index gained 0.6 percent to 20,195.48 on expectations the yen will weaken further against the dollar as the central bank strives to keep long-term bond yields low. Wall Street looked set for a lackluster start with Dow and S&P 500 futures both 0.1 percent lower.

This was thanks to renewed purchases on the back of a rise in the US interest rates in off-hours trading and the Nikkei's further ascent, traders said.

"So while it may not be coordinated communication, I do think there's been a change in rhetoric from central banks across the world - though the ECB is the central bank to watch in the second half of the year".

"Dovish expectations regarding the BoJ's policy, combined with the USA yields are supportive of a further yen depreciation against the US dollar", said Ipek Ozkardeskaya, a senior market analyst at London Capital Group who expects dollar bulls to target 115 yen in the weeks to come.

The top United States central banker on Wednesday will update lawmakers on the outlook for the economy and her expectations for additional interest rate increases in a twice-annual appearance before Congress.

The Wall Street Journal Dollar Index, which measures the US currency against a basket of 16 others, was recently unchanged at 88.39.

The Fed on Friday said it expects a "gradual" increase in interest rates (https://www.federalreserve.gov/monetarypolicy/mpr_default.htm) and for balance-sheet normalization to begin this year.

German bunds came under renewed selling pressure early in Europe on Tuesday with the increase in yields providing net Euro backing with EUR/USD finding support just above the 1.1380 level. Brent crude, used to price global oils, rose 64 cents, or 1.4 percent, to $47.52 a barrel in London.

After ending the previous session modestly higher, stocks may move back to the downside in early trading on Tuesday.

It's a packed week for news that could affect the bond market.

With U.S. yields free to rise, the spread between 10-year Treasury and JGB yields is the widest it has been in about two months, contributing to the dollar's strength against the yen.