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 Having obsessed for months about when U.S. interest rates will start
to rise, traders began thinking that maybe, just maybe, they might
have to fall again, given limp U.S. retail sales, the biggest
producer prices falls in eight months and a $22 billion hammering
for the world's biggest retailer Wal-Mart.
The dollar had dropped like a stone overnight, testing $1.15 per
euro and slicing down to 118.10 yen.
It found some support as European Central Bank policymaker Ewald
Nowotny said that it was "quite obvious that additional sets of
instruments are necessary" to bring euro zone inflation back towards
percent.
"Markets are pricing out a Fed rate hike and the dollar is
crashing," said Aurelija Augulyte, a senior FX strategist at Nordea
in Helsinki.
"If you look at the very recent U.S. data there are signs of
worry... If China doesn't recover and if the European data doesn't
improve either there is a fair chance we could discuss further (Fed)
easing," she added.
European shares snapped a three-day slide on the prospects of more
central bank support. The regional FTSEurofirst 300 <.FTEU3> rose 1
percent after Asian bourses, also hoping for stimulus from China and
Japan, hit their highest since mid-August.
MSCI's broadest index of Asia-Pacific shares outside Japan rose 2
percent as Shanghai shares advanced 2.3 percent, Australian
shares nudged up 0.6 percent and South Korea's Kospi climbed 1.1
percent.
Japan's Nikkei gained 1.15 percent, as the second successive fall in
manufacturers' sentiment kept pressure on policymakers to do more.
"There seem to be considerable expectations of further economic
stimulus, which could mitigate some of the deflationary pressures,"
said Gerry Alfonso, analyst at Shenwan Hongyuan Securities.
EMERGING RELIEF
Expectations of a long delay to rate hikes boosted U.S. Treasuries,
taking the benchmark 10-year note yield as low of 1.9690
percent.
In Europe, German Bund yields reached their lowest in two weeks as
Nowotny raised hopes of more ECB bond buying.
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European Central Bank Vice President Vitor Constancio said a rate
hike by the Fed could have greater global repercussions than in the
past because the economy has changed and central banks have little
experience of moving away from zero interest rates.
But the chances of a Fed hike any time soon have all but evaporated
follow a month-long run of disappointing U.S. data.
On Wall Street, the Dow lost 0.9 percent and the S&P 500 shed 0.5
percent overnight after a weak profit forecast from the shopping
giant Wal-Mart's triggered its biggest share price fall since
1998. [.N]
Goldman Sachs, Citi and Philip Morris are all due to report third
quarter results later along with another dump of economic data. Wall
Street's main markets are expected to start 0.6-0.8 percent higher.
Among commodities, oil struggled amid lingering concerns of a global
supply glut and as the dollar started to stabilize. Industrial
metals got a fresh lift with copper near a 4-week high and gold
reaching a 3-1/2 month peak.
Emerging Asian currencies made the most of the earlier dollar
weakness. The Indonesian rupiah <IDR=> hit its strongest in more
than four months, South Korea's won touched a three-month peak and
Malaysia's ringgit jumped more than 1 percent.
"We are seeing continuous unwinding of bearish bets on emerging
currencies generally, as views of 'no U.S. hike this year' are
growing," said Seungji Jeon, Samsung Futures' FX analyst in Seoul.
(Editing by Toby Chopra/Ruth Pitchford)
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