LONDON, NEW YORK
Buoyant commodity prices alongside a pullback in US bond yields and the dollar propelled world stocks to new record highs on Thursday, signalling the rally would likely extend into 2018.
MSCI’s world equity index, which tracks shares in 47 countries, has risen about 22 per cent this year and looks set for a record 14th straight month of gains.
Wall Street’s main indexes rose in thin holiday trading on Thursday, helped by gains in technology stocks.
Apple was the biggest driver of the three indexes, with the high-flying FANG stocks — Facebook, Amazon, Netflix and Alphabet — also contributing to the rise.
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.
European stock markets were slightly weaker in light holiday-season trading on Thursday, but London’s FTSE 100 was still hovering close to its recent record highs on the back of strong commodity prices.
In the Eurozone, both Frankfurt’s DAX 30 index and the Paris CAC were down by around 0.2 per cent in afternoon trading.
But London’s benchmark index, which had hit a record of 7,632.71 on Wednesday, flat, buoyed up by higher copper prices.
“Equity markets are once again mixed in thin market trading,” said Accendo Markets analyst, Henry Croft.
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 per cent.
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 US 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 per cent 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 US tax cuts, which will lead to significantly higher borrowing in coming years, have not so far translated into higher borrowing costs.
In fact, US 10-year Treasury yields have retreated after briefly last week breaking above the key 2.50 per cent level, falling as much as seven basis points on Wednesday.
Two-year yields too are off nine-year highs after showed US 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 per cent 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 back foot 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 per cent to approach one-month highs. The index is up 34 per cent this year.
For Oanda analyst Craig Erlam, it was “another relatively quiet day, as is often the case during the holiday period, and a lack of economic events on the calendar won’t help matters.”
Earlier in Asia, Hong Kong rose 0.9 per cent and Shanghai gained 0.6 per cent, while Sydney put on 0.3 per cent.
But Tokyo finished 0.6 per cent down after an afternoon sell-off fuelled by the strengthening yen, as traders fret over another possible North Korean missile test.
