Richard Drew
World stocks rose Monday as investors bet on further asset buying by the Federal Reserve and a continuation of global currency flows toward emerging markets.
The U.S. dollar rebounded as profit-taking by dollar bears reversed the flow against the U.S. currency, weakened amid rising expectations for Fed stimulus.
Finance policy makers meeting over the weekend in Washington produced no quick fix for global economic imbalances, providing no barriers to the cheap money trade of selling dollars to buy emerging market assets and commodities.
Reflecting this, MSCI's main emerging market stock index climbed more than half a per cent for a nearly 12 per cent year-to-date gain. JPMorgan's EMBI+ index showed investors snapping up emerging market government debt.
Both moves are continuations of massive flows into emerging markets in search of faster growth and higher yields than those available in developed economies.
EPFR Global said in its latest flow report at the end of last week that emerging market equity fund flows had hit a 33-month high and emerging bond funds had absorbed more than $1-billion in a week.
"It is increasingly being seen as the trade for all seasons," said David Shairp, global strategist at JPMorgan Asset Management.
Friday's U.S. jobs data, which was worse than expected, raised expectations the Fed will buy more assets under its quantitative easing (QE) program, essentially trying to pump up the ailing U.S. economy by printing more money.
This generally drives investments out of dollar assets and toward higher-yielding ones.
But Mr. Shairp reckons many in the markets also see the flow patterns continuing even if there is no new QE, with investors betting on higher growth abroad than in the U.S. economy.
At midday in New York, the Dow Jones industrial average rose 12.33 points, or 0.11 per cent, to 11,018.81. The Standard & Poor's 500 Index increased 1.90 points, or 0.16 per cent, to 1,167.05 and the Nasdaq Composite Index climbed 8.11 points, or 0.34 per cent, to 2,410.02.
In Europe, the FTSEurofirst 300 gained 0.3 per cent - taking the year-to-date gain up to around 2.5 per cent - as traders anticipated the U.S. stimulus. The MSCI world equity index rose a half per cent.
"The market is clearly expecting quantitative easing and has priced that in," said Richard Lacaille, global chief investment officer at State Street in London. "The (U.S.) data continue to be as expected, part of a slow recovery."
Japanese markets and U.S. bond markets were closed for holidays.
Attention was also building on the upcoming corporate earnings reporting season.
Three Dow Jones index components - Intel Corp. , JPMorgan Chase & Co and General Electric Co - are scheduled to release quarterly results this week. Investors will look at revenue outlooks for insight into how corporations are faring. Bellwethers Google Inc and CSX Corp are also on tap.
"I'm expecting a fairly decent earnings season, which will continue to build a base and show consistent growth. But the Fed will be the cause of greater volatility and price moves on a broader basis," Greco said.
Dow component Microsoft Corp edged up 0.4 per cent at $24.67 after the company unveiled a new line of phones running its Windows software in an attempt to regain market share in the smartphone space.
In currency markets, the U.S. dollar rose against a basket of major currencies as traders booked gains on long-time bearish bets.
"We've seen it for a while, since mid-September, the dollar sliding in value on the high likelihood that we will see more quantitative easing coming out of the Fed," said Tim Ghriskey, chief investment officer at Solaris Asset Management in Bedford Hills, New York.
"And we will continue to see that expectation until the Fed actually does something and states that they are done, at least, for the time being."
The euro fell 0.38 per cent to $1.3887, while the dollar rose 0.21 per cent to 82.07 yen.
The dollar earlier sank as low as 81.36 yen, triggering another round of speculation about possible intervention by Japan to weaken the yen.
In commodities, U.S. light sweet crude oil fell 20 cents, or 0.24 per cent, to $82.46 per barrel, and spot gold rose $4.65, or 0.35 per cent, to $1350.90.