LDN - Business

Clarity on Fed policy sought - stocks, dollar up in meantime

[February 06, 2017] By Nigel Stephenson

LONDON (Reuters) - Investors sought clarity on Monday in the face of a host of economic and political uncertainties but gave the benefit of the doubt to shares and the dollar, lifting both.

A heavy week of corporate earnings was a major driver on stocks markets.

In the currency market, the question was how Friday's U.S. labor market data will affect the pace of Federal Reserve interest rate rises. Far more jobs were added last month than expected, though hourly wages barely budged.

Oil prices rose on news that new U.S. sanctions on Iran could be extended to affect crude supplies.

French government bonds, meanwhile, underperformed German benchmarks with a gap not seen in four years after French far-right party leader Marine Le Pen launched her bid for the presidency with a vow to fight deregulated globalization.

But there was no overarching theme to Monday's market moves, highlighting how correlations between financial market assets have broken down in recent months as investors sense the era of ultra-loose monetary policy may be winding up.

The pan-European STOXX 600 index <.STOXX> rose 0.2 percent, led higher by basics resources shares <.SXPP> and after some positive company results.

MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> rose 0.6 percent, with Taiwan <.TWII> leading the pack by adding 0.9 percent.

Japan's Nikkei <.N225> rose 0.2 percent, with banks rising after U.S. President Donald Trump signed an executive order to scale back regulations in the financial industry that were implemented after the financial crisis.

Trump meets Japanese Prime Minister Shinzo Abe on Feb. 10 and 11, with trade and currencies likely to be on the agenda.

China's CSI 300 stocks index rose 0.3 percent, though investors were caution after the central bank unexpectedly raised short-term interest rates on Friday.

In debt markets, French 10-year government bond yields rose 1.6 basis points to 1.1 percent. German equivalents, the euro zone benchmark, dipped 2 bps to a two-week low of about 0.4 percent, pushing the gap between the two to its widest in four years.

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"The likelihood of Le Pen winning is unlikely, but the situation in France is certainly raising fears among investors," said DZ Bank rates strategist Christian Lenk. "French bonds will continue to underperform even though a lot is priced into the market."

DOLLAR INCHES UP

The dollar inched up 0.1 percent against a basket of major currencies <.DXY>. Data on Friday showed average hourly earnings rose just 0.1 percent, suggesting any pick-up in inflation would be slight.

This led some analysts to conclude the Fed would be in no hurry to raise interest rates.

Currency investors are also awaiting details on expected pro-dollar tax and spending initiatives pledged by Trump..

However, San Francisco Fed President John Williams said later in the day that the central bank can prepare to raise rates this year without knowing the details of any new U.S. fiscal policies.

On Monday, the euro weakened 0.3 percent to $1.0747 <EUR=> while the yen gained 0.1 percent to 112.60 per dollar <JPY=> and sterling dipped 0.2 percent to $1.2450 <GBP=D4>.

Oil prices rose, partly due to the dollar's relative weakness, but also on concern about any extension of new U.S. sanctions imposed on major oil producer Iran over that country's missile program.

"The move by the U.S. to impose new restrictions on Iran ... does raise the risk of further tensions disrupting (oil) supply," ANZ bank said.

Brent crude, the international benchmark, rose 9 cents a barrel to $56.92.

Gold <XAU=> rose 0.2 percent to $1,222 an ounce.

(Additional reporting by Wayne Cole in Sydney, Dhara Ranasinghe in London Editing by Jeremy Gaunt)

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