LONDON (Reuters) - Global
stocks traded just off record highs on Friday, still
largely undeterred by a second week of violence in Iraq
that has sent oil prices to nine-month highs.
Buoyed by the billions of dollars the U.S. Federal Reserve is still
pumping into the global economy under its quantitative easing
program, equity markets took heart from a sanguine message this week
on inflation from Fed chief Janet Yellen.
That effect was still dominant on Friday, with all of Europe's major
exchanges inching up in early trade, although the headline MSCI
index of world shares dipped 0.2 percent from record highs hit
on Thursday.
"The goldilocks scenario of low rates and a slowly improving economy
continues, with markets unmoved by continued geopolitical concerns,"
said Michael Hewson, chief market analyst at CMC Markets in London.
"Against that backdrop stocks look likely to remain underpinned,
though trading today is likely to be cautious as we head into the
weekend, given what could unfold ... in Iraq."
Iraqi government forces battled Sunni militants on Thursday for
control of the biggest oil refinery in the country, OPEC's
second-largest producer. If the 300,000 barrels per day refinery
stays closed, Baghdad will need to import more oil products to meet
domestic consumption, further tightening oil markets.
Oil prices rose further in response and they were within touching
distance of nine-month highs on Friday at $114.96.
The other big beneficiary of events in Iraq has been gold, which
sold off heavily earlier this year but is now close to two-month
highs. It saw its biggest one-day rise in nine months on Thursday on
the back of expectations, encouraged by the tone of Yellen's
comments, that monetary policy will stay loose in the United States,
Europe and Japan for a long time yet.
DOLLAR DISAPPOINTMENT
If the Fed and other central banks prove more willing in future to
tolerate higher inflation in aid of faster economic growth then gold
is a good way of hedging any impact on the value of the dollar and
other currencies.
"Gold's move this week has been fueled by a rebasing of expectations
after the FOMC meeting, geopolitical risks, positioning and more
favorable technicals," said Edel Tully, a strategist at UBS.
"We're not convinced that the rally has further longevity ... the
move has a lot more to do with positioning, not just with shorts
being elevated, but gross longs are also quite light."
Spot gold traded $1,309.30 an ounce having been as far as $1,321.70
at one stage on Thursday.
Japan's Nikkei ended steady after touching a fresh five-month peak,
while the broader TOPIX brought its gains to more than 10 percent in
just the past four weeks.
"The good mood is still lingering," said Kyoya Okazawa, head of
global equities at BNP Paribas. "Not just foreign investors but also
long-term domestic investors like pension funds have been buying as
well."
MSCI's broadest index of Asia-Pacific shares outside Japan ran out
of steam, easing 0.4 percent on losses in South Korea and China.
On currency markets, the main fallout of Wednesday's Fed meeting has
been disappointment for the dollar. Some investors had been hoping
for an aggressive message on the prospect of higher interest rates
that would support the U.S. currency.
In contrast, expectations the Bank of England will move at latest by
early next year drove the yield gap between two-year British gilts
and U.S. Treasuries higher and helped the pound trade near 5-1/2
year highs.
The Norwegian crown, subject to a wipeout on Thursday after a U-turn
by the central bank there on policy, was down another 0.4 percent on
Friday.
(Additional reporting by Francesco Canepa, Anirban Nag and Clara
Denina; Editing by Catherine Evans)
Buoyed by the billions of dollars the U.S. Federal Reserve is still
pumping into the global economy under its quantitative easing
program, equity markets took heart from a sanguine message this week
on inflation from Fed chief Janet Yellen.
