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 Federal Reserve chief Janet Yellen and two senior colleagues pointed
to December as a "live possibility" for a rise, adding to signs that
the U.S. central bank is again on the verge of moving after months
of vacillating over the domestic and global economy's ability to
deal with higher borrowing costs.
An adverse reaction from global markets to September's policy
meeting put the Fed off raising rates when many had expected it to,
but there have been some signs this time that investors have grown
more sanguine about the likely fallout.
European stocks, after gaining initially on another batch of upbeat
corporate results, were down 0.1-0.3 percent.
"Markets are still digesting what Yellen said yesterday and whether
it means multiple rate hikes ahead," Peregrine and Black trader,
Markus Huber, said.
"A December rate hike seems to be very likely now again. Investors
are also taking a little bit of money off the table as well ahead of
tomorrow's non-farm payrolls."
Money-market pricing showed a greater than 50-percent chance of a
rate rise next month and the dollar index, which tracks the
greenback against six major currencies, rose 0.15 percent to 98.135,
after an 0.8 percent jump on Wednesday.
Currency analysts and traders say many speculative and longer-term
players have weighed in this week behind another run higher for the
dollar, after a stuttering performance over the past six months.
It rose as high as $1.0834 per euro on Thursday before steadying.
Some of the Asian markets most exposed to a rise in U.S. interest
rates had followed Wall Street lower overnight after Yellen's
comments. But Shanghai, where a boom in borrowing in dollars makes
companies among the most at risk from higher dollar rates, rose
about 2 percent.
The crunch now will be U.S. data over the next few weeks. U.S. data
on Wednesday supported Yellen's guarded optimism, with private
employers hiring steadily in October and a jump in new orders
buoying activity in the services sector.
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Influential non-farm payroll numbers are due on Friday.
According to data from Thomson Reuters StarMine, 50 percent of
European companies reporting so far this quarter have met or beaten
analysts' earnings forecasts.
European stock and bond markets are also increasingly sure that the
European Central Bank will do the opposite to the Fed and pump yet
more cash into the euro zone economy next month.
The gap between U.S. and German two-year bond yields spread to its
widest levels in nine years, emphasising the diverging outlook for
policy on either side of the Atlantic. Yields on U.S. two-year notes
rose to their highest in 4-1/2 years.
"It looks like we have to seriously prepare for the prospect of the
two major central banks embarking on opposing paths of monetary
policy in December," ING's senior rate strategist Martin van Vliet
said.
On oil markets, Brent crude futures steadied, up 0.7 percent on the
day at $48.95 per barrel after falling from Tuesday's three-week
high of $50.91.
(Additional reporting by Hideyuki Sano in TOKYO; Editing by Louise
Ireland)
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