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GLOBAL MARKETS-Shares, dollar dip with Fed timing still dominating
August 15, 2013 / 8:22 AM / in 4 years

GLOBAL MARKETS-Shares, dollar dip with Fed timing still dominating

* Uncertainty over Fed sends dollar, stocks lower
    * Japanese corporate tax signal weighs on dollar/yen
    * Brent crude near $111 a barrel on unrest in Egypt
    * Growth in Britain lifts sterling

    By Richard Hubbard
    LONDON, Aug 15 (Reuters) - World shares edged lower and the
dollar softened on Thursday as uncertainty over when U.S.
Federal Reserve will begin cutting its monetary stimulus offset
a brighter economic picture in Europe.
   A barrage of data on the health of the U.S. labour market,
manufacturing and consumer price inflation due later could
clarify the outlook though share index futures pointed to
further falls for Wall Street ahead. 
   "If we get good data... then it might boost thinking that
tapering is coming in sooner rather than later," said Chris
Beauchamp, equity analyst at IG Index.
    Financial markets have largely positioned for the Fed to
start paring its monthly $85 billion spending on bonds in
September but conflicting signals from policymakers and muted
inflation data lately have undermined this conviction.
    On Wednesday, St. Louis Fed President James Bullard cited
the inflation outlook when he said he hadn't decided whether
next month's policy meeting would be too soon to curb the asset
purchases, known as quantitative easing or QE. 
 
    "Markets were absolutely convinced we would see about a 20
percent reduction in the run rate of QE in the September
meeting," said Mike Ingram, market commentator at BGC.
    In response to Bullard's comments and the weak reading for
U.S. producer price inflation, the dollar at one point on
Thursday tumbled about 0.5 percent against the Japanese currency
to a low of 97.63 yen. It later settled at around 98 yen,
to be just 0.1 percent lower.
    The greenback's fall was exacerbated by Japanese government
efforts to stamp out talk of corporate tax cuts which might have
helped boost the world's No. 3 economy. 
    Against a basket of major currencies, the dollar was
down 0.2 percent, although was off its lows of last week.
    Talk about the timing of an end to the Fed's bond buying has
dominated the markets because it is likely to boost U.S.
Treasury yields, supporting demand for the dollar, and could 
hurt shares and commodities, which have gained as world central
banks have primed markets with liquidity.
    The MSCI world equity index was down 0.2
percent and on course for its worst week in nearly two months
after the Bullard comments sparked a selloff in the Dow on
Wednesday and led to weakness across Asia.

  
   
    GROWTH GAINS
    Signs of recovery in Europe and strengthening growth in
Britain still underpin the region's equity markets although
investors are becoming increasingly wary over the implications
for future central bank policy.
    German government bond yields hovered around 2013 highs on
Thursday after money market rates moved higher following data
that showed the euro zone economy had emerged from an
18-month-long recession in the second quarter.
    With much of Europe closed for public holidays, 10-year
German yields were holding at 1.87 percent, the
highest since April 2012. 
    British government bond prices fell sharply and the pound
hit a two-month high against the dollar as strong retail sales
added to a string of recent data that have pointed to an
economic recovery gathering steam. 
    Sterling rose to $1.5590 after the data while
September gilt futures extended their losses sharply to
be down 0.6 percent at 109.25. Britain's main share index, the 
FTSE 100 slipped by over 1.1 percent. 
    In commodity markets, supply worries linked to the growing 
violence in Egypt and the brighter global growth outlook pushed
oil prices higher and kept copper near a nine-week high.
    A state of emergency was declared by the Egyptian government
on Wednesday following deadly political violence. Investors fear
the turmoil could choke off routes such as the Suez Canal or
spill over into big oil-producing nations. 
    "Egypt may not be a major oil producer but the Suez Canal is
an important gateway, not just for oil flows but also for
commodities," said Carl Larry, president of Houston-based
consultancy Oil Outlook and Opinions. "If there is any
disruption or if the violence results in the shutting down of
the canal, the impact will be quite severe."
    Brent crude was trading 70 cents higher at $110.90
after jumping by over a dollar earlier to $111.53, its highest
level since April 2. U.S. oil rose 83 cents to $107.68.
    Copper was little changed $7,264 a tonne, while gold
 stood near a 3-week high at $1,338.25 an ounce.

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