Dollar, global shares gain on expected delay to Fed tapering

Reuters
Traders work on the floor of the New York Stock Exchange, October 18, 2013. REUTERS/Brendan McDermid
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Traders work on the floor of the New York Stock Exchange, October 18, 2013. REUTERS/Brendan McDermid

By Herbert Lash

NEW YORK (Reuters) - The dollar gained and global equity markets traded at five-year highs on Monday, buoyed by a benign outlook for stocks as investors awaited a backlog of U.S. economic data that may yield clues on when the Federal Reserve will begin to pare its stimulus program.

Wall Street traded near break-even on the realization the U.S. fiscal impasse that was resolved last week by pushing decisions into early next year will likely keep the Fed's bond-buying in place well into 2014, which would be good for stocks.

The United States is enjoying moderate growth with tame inflation, a Goldilocks economic climate that is neither too hot nor too cold but has been distorted by the Fed's intervention.

"I wouldn't bet against the market in the short term. Investors as a group seem to have decided that the Fed is on board for the foreseeable future," said Brad McMillan, chief investment officer at Commonwealth Financial in Waltham, Massachusetts. "It's Goldilocks's evil twin."

MSCI's world equity index, which tracks shares in 45 countries, was up as much as 0.7 percent before flattening, while the FTSEurofirst 300 index of leading European shares rose 0.23 percent to close at a provisional 1,280.66.

Solid corporate earnings from the likes of Philips (PHG.AS), whose shares jumped 6.5 percent after the Dutch maker of healthcare equipment and energy-efficient lighting reported a near tripling of its third-quarter net profit, lifted European shares.

The S&P 500 hit a record high early in the session, boosted by gains in Apple (AAPL.O) after a bullish research note, but lackluster results from McDonald's Corp. (MCD.N) weighed on the Dow and S&P, which reversed gains to trade slightly lower.

The Dow Jones industrial average was down 12.54 points, or 0.08 percent, at 15,387.11. The Standard & Poor's 500 Index was down 0.72 points, or 0.04 percent, at 1,743.78. The Nasdaq Composite Index was up 6.72 points, or 0.17 percent, at 3,921.00.

The day's U.S. economic data supported views of modest growth and combined with the prospect of renewed political gridlock at the beginning of 2014, the Fed's stimulus program may stay intact for months, if not more.

"This is a weird case, I acknowledge, but as long as things don't get too good, it's actually better. We want to grow a little bit but not fast enough to pull the stimulus back," McMillan said.

U.S. home resales fell in September and prices rose at their slowest pace in five months, the latest signs higher mortgage rates were taking some edge off the housing market recovery.

The National Association of Realtors said on Monday that home sales fell 1.9 percent in September to an annual rate of 5.29 million units. August's sales pace was revised down to 5.39 million units from the previously reported 5.48 million units.

U.S. Treasuries prices dipped ahead of Tuesday's release of employment data for September, after the partial U.S. government shutdown for more than two weeks delayed economic releases and increased concerns that the closures will weigh on growth.

"The (data) expectations are probably that it has a better chance of being stronger because it was pre-government shutdown," said Charles Comiskey, head of Treasuries trading at Bank of Nova Scotia in New York.

The benchmark 10-year U.S. Treasury note fell 5/32 in price to yield 2.605 percent.

The dollar climbed against the yen and the Swiss franc as a few investors positioned for an expected strong U.S. jobs data reading on Tuesday, which will provide new fodder for the debate over when the Fed will begin to scale back monetary stimulus.

Economists polled by Reuters expect jobs growth of around 180,000 and an unemployment rate steady at 7.3 percent.

"For now, all eyes will turn to U.S. nonfarm payrolls data tomorrow, with markets anticipating a print near the 180K level," said Boris Schlossberg, managing director of FX strategy at BK Asset Management in New York. "If the numbers are close to expectations, the greenback could see a relief rebound as the week proceeds."

The dollar rose 0.44 percent against the yen to 98.13 yen, inching toward a near three-week high of 99.00 yen set last Thursday. Against the Swiss franc, the dollar was up 0.03 percent at 0.9020 franc.

The dollar index was up 0.09 percent at 79.726.

U.S. crude slipped below $100 per barrel on pressure from strong supply, but losses were limited by hopes the Fed will delay curbing its money-printing program until next year.

Stocks of U.S. crude oil gained 4.0 million barrels, almost double the forecast for a build of 2.2 million barrels, according to the Energy Information Administration.

Brent crude futures for December delivery slipped 24 cents to $109.70 a barrel.

U.S. crude oil futures for November delivery fell by $1.05 to $99.76 a barrel.

(Additional reporting by Richard Hubbard in London; Editing by Dan Grebler and Leslie Adler)

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