LDN - Business

World stocks in year-end rally as dollar retreats, copper surges

[January 16, 2018] By Sujata Rao

LONDON (Reuters) - Buoyant commodity prices alongside a pullback in U.S. bond yields and the dollar propelled world stocks to new record highs on Thursday, signaling the rally would likely extend into 2018.

MSCI's world equity index, which tracks shares in 47 countries, has risen about 22 percent this year and looks set for a record 14th straight month of gains.

U.S. stock futures too rose, indicating a stronger day ahead on Wall Street.

This year's equity rally has been led by the bumper performance in Asia, which is on track for its best year since 2009, with MSCI's index of Asia-Pacific shares outside Japan approaching late-2007 highs.

Equity markets have fed off this year's recovery in world trade and economic growth, which have in turn lifted company earnings and commodity prices, with copper futures at new four-year highs for an annual gain of over 30 percent.

Oil prices meanwhile are near 2-1/2-year highs and gold climbed to a one-month top.

Traders anticipate the equity rally continuing into next year, especially if U.S. tax cuts further boost growth in the world's largest economy.

"Commodities are driving trade in the final days of 2017," analysts at London Capital Group said in a note.

"(Copper) has rallied 25 percent since the beginning of June, and with this in mind Dr Copper is telling us we could be in for a strong 2018," they added, referring to the perception of copper as a key barometer of economic growth.

Another tailwind for world stocks is the fact that U.S. tax cuts, which will lead to significantly higher borrowing in coming years, have not so far translated into higher borrowing costs.

In fact, U.S. 10-year Treasury yields have retreated after briefly last week breaking above the key 2.50 percent level, falling as much as seven basis points on Wednesday.

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A pedestrian looks an electronic board showing the stock market indices of various countries outside a brokerage in Tokyo, Japan, February 3, 2016. REUTERS/Yuya Shino

Two-year yields too are off nine-year highs after showed U.S. consumer confidence tumbling from 17-year highs.

Brokerage FXTM noted that 10-year yields had reversed almost half the gains they had made since mid-December.

The dollar index skidded some 0.3 percent against a basket of currencies, to a near one-month lows.

"The dollar bears are getting their last licks in for 2017, perhaps foreshadowing of things to come in 2018," said Stephen Innes, head of Asia-Pacific trading at OANDA.

With the dollar on the backfoot and commodities flying, currencies of commodity exporting countries such as Canada, Australia, New Zealand and South Africa, New Zealand hit multi-week highs..

Emerging equities surged almost one percent to approach one-month highs. The index is up 34 percent this year.

However, bitcoin, the digital currency which many would consider one of the most risky bets out there, failed to benefit from the risk-on mood - it fell more than 10 percent to under $14,000.

Bitcoin has declined from record highs of nearly $20,000 earlier this year but is still up about 39 percent this month and has gained 5,000 percent in 2017.

(Additional reporting by Swati Pandey in Sydney; Abhinav Ramnarayan and Kit Rees in London, Editing by William Maclean)

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