World stock markets cheered by healthy economy, dollar firm

[July 10, 2017]  By Dhara Ranasinghe

LONDON (Reuters) - World stock markets rallied on Monday and the U.S. dollar hit a two-month high against the yen as the latest U.S. jobs data gave investors greater confidence in the strength of the economy.

Focus was already turning to Federal Reserve chief Janet Yellen's semi-annual testimony on monetary policy and a meeting of Canada's central bank on Wednesday for the latest policy signals from the world's major central banks.

For now, unease about an end to an era of ultra-cheap money gave way to optimism about the global growth outlook, with Friday's stronger-than-expected U.S. non-farm payrolls report helping to bolster risk appetite. Data on Monday showed exports from Germany, Europe's biggest economy, rose more strongly than expected in May.

European stock markets followed Asia higher, with blue-chip stock markets in London, Paris and Frankfurt up 0.2 to 0.5 percent in early Monday trade.

MSCI's broadest index of Asia-Pacific shares outside Japan advanced 0.4 percent while Japan's Nikkei rose 0.8 percent to a one-week high helped by weakness in the Japanese currency.

U.S. stock futures also firmed, suggesting Wall Street shares could extend gains made after the U.S. jobs data.

"Unlike in recent years, where there was very patchy growth across the world, we are seeing a synchronized upswing in the global economy," said Alex Dryden, global market strategist at JP Morgan Asset Management.

"So while it may not be coordinated communication, I do think there's been a change in rhetoric from central banks across the world -- though the ECB is the central bank to watch in the second half of the year."

Over the past two weeks, markets have reassessed the outlook for tighter monetary policies from major central banks following a string of hawkish remarks.

"We'll see just how much substance there is to these comments on Wednesday, when the Bank of Canada announces its latest decision, with investors now expecting a 25 basis point increase," said Craig Erlam, senior market analyst at OANDA.

Traders work in front of the German share price index, DAX board, at the stock exchange in Frankfurt, Germany, July 3, 2017. REUTERS/Staff/Remote

A rate rise from Canada's central would be its first interest rate rise in nearly seven years.

DIVERGING

The dollar rose almost 0.4 percent to 114.29 yen, a two-month peak, while the dollar index -- which measures the dollar's value against a basket of other major currencies -- was a touch firmer at 96.071.

"The solid jobs report gives us more reason to expect the Fed to announce that it's prepared to start trimming its balance sheet," said Mitsuo Imaizumi, Tokyo-based chief foreign exchange strategist for Daiwa Securities.

"By contrast, the Bank of Japan is nowhere near a policy exit, and it's taking steps that weaken the yen," he said.

The euro was largely steady at $1.1404.

The Group of 20 meeting in Hamburg over the weekend did not have much impact on markets on Monday.

Oil crept up after sliding on Friday on a report showing U.S. crude production rose last week, just as OPEC exports hit a 2017 high, rekindling concerns about a supply glut.

Global benchmark Brent was up 0.2 percent at $46.76, following Friday's 2.9 percent slide.

Bond markets, hit hard by jitters about tighter central bank policies in the past two weeks, were stable on Monday.

The 10-year U.S. Treasury yield was steady near a two-month high of 2.398 percent hit on Friday. In Europe, Germany's benchmark 10-year Bund yield was flat at 0.56 percent but within sight of 18-month highs.

(Additional reporting by Nichola Saminather in Singapore and Abhinav Ramnarayan in London)

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