Wall St to test record high on Fed balm as dollar languishes

LONDON: New York was set to test record highs on Tuesday, underpinned by reassurances from Federal Reserve officials that monetary stimulus will remain in place during the pandemic.

The soothing words on inflation kept the dollar at four-and-a-half-month lows and triggered attempts to rein in the yuan.

US stock futures, the S&P 500 e-minis, were up 0.3%, pointing to a steady open on Wall Street. The S&P 500 index closed at 4,197.05 points on Monday, near its lifetime high of 4,238.04 of May 7.

Ned Rumpeltin, European head of currency strategy at TD Securities, said markets were beginning to head for the traditional summer lull, with grinding shifts in the dollar, yuan and euro a focus.

"This is more of a reflection of dollar weakness, rather than other currencies outperforming on their own," Rumpeltin said.

"You see risk appetite remain quite firm, with US futures markets running back towards their recent highs."

The European Central Bank's chief economist, Philip Lane, speaks at 1400 GMT, his comments scrutinised for any concerns about the level of the euro or for hints on tapering.

The mood in Europe was underpinned by the German leading indicator IFO rising to its best level in two years as the accelerating roll-out of vaccines and first steps to reopening the economy boosted optimism, ING bank said in a note.

A multibillion-euro takeover deal combining two of Germany's biggest property developers was a focus. Vonovia slipped 2% on news of its 18 billion-euro takeover of rival developer Deutsche Wohnen, whose shares surged over 15%.

The STOXX index of leading European shares gained 0.4% to 446.83 points after hitting a record high of 447.15.

NEXT DATA POINT

James Bullard, president of the St. Louis Federal Reserve, put to rest tapering worries for the time being, saying on Monday that while still in the pandemic, it was not the time to talk more about changing the parameters of monetary policy.

"The US personal consumption data on Friday is going to be the first major test about whether the Fed is going to see inflation as transitory," said Giles Coghlan, chief currency analyst at HYCM.

Reassurance on inflation and Bitcoin's steadier footing after recent big losses helped to push Wall Street's VIX "fear gauge" to below 20, near its long-term average.

Elsewhere, China's major state-owned banks were seen buying US dollars in a bid to curb fast yuan appreciation.

Treasury yields, which fell on Monday after a few Fed officials affirmed their support to keep monetary policy accommodative for some time, were little changed. The yield on benchmark 10-year Treasury notes was at 1.5910%.

Digital currencies bounced back on Monday following last week's crypto rout, regaining ground lost during a weekend selloff on news of China's clampdown on mining and trading of cryptocurrencies.

After shedding 13% on Sunday, Bitcoin, the world's largest cryptocurrency, was last down 4% at approximately $37,268.

The dollar index, which tracks the greenback against a basket of currencies of major trading partners, edged down to 89.640.

The European single currency was up 0.33% on the day at $1.2255, having gained 1.7% in a month.

US crude eased 0.38% to $65.8 a barrel. Brent crude fell 0.2% to $68.30 per barrel.

Spot gold traded at $1,882 per ounce, little changed.

In Asia, the region's main regional equity gauges climbed, with MSCI's broadest index of Asia-Pacific shares outside Japan up 1.5% at a two-week high.