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Fading Fed Hike Prospects Results in World Stocks Hitting a One-Year High

Fading Fed Hike Prospects Results in World Stocks Hitting a One-Year High
Due to expectations of a rise in Federal Reserve interest rates receded after weak U.S. economic data, world stocks hit their highest in more than a year and the dollar fell sharply against the yen on Wednesday.
As investors sought yield with interest rates likely to stay low for a prolonged period, emerging market shares led the charge, touching their strongest levels since July 2015.
However during early trade there was dip in European shares. Even though many market participants remained doubtful producers would reach a deal to freeze output, oil prices rose resulting in energy shares being the top gainers in Europe, up 0.7 percent .SXEP. The weak U.S. data, which followed weaker-than-expected jobs numbers on Friday, was bet upon by some investors hoping that it would pressure the European Central Bank to ease monetary policy further which resulted in Euro zone government bond yields falling.
"With a September rate hike looking less likely to happen, the ECB might be more pressured to come up with a decision this week on further measures," said Benjamin Schroeder, senior rates strategist at ING.
In Asia, having earlier touched its highest since July last year, MSCI's main Asia-Pacific stock index, excluding Japan .MIAPJ0000PUS was up 0.2 percent. As a result the MSCI's all-country world index .MIWD00000PUS to was raised to its highest since August 2015.
"When people think there's no immediate rate hike from the Fed, then Asia and emerging markets are the place to go to, as investors seek yields," said Toru Nishihama, senior economist at Dai-ichi Life Research.
However, as a strong yen hurt exporters, Japan's Nikkei index retreated 0.4 percent.
Having fallen as low as 101.18, its weakest since Aug. 16, the dollar was last down 0.5 percent at 101.50 yen.
The already slim prospects for a Fed rate hike this month were diminished after Institute for Supply Management data showing activity in the U.S. service sector slowed to a 6 1/2-year low in August, the dollar fell 1 percent against several major currencies on Tuesday.
There was no change in the dollar index .DXY, which measures the greenback against a basket of major currencies. While sterling , which topped $1.34 for the first time in seven weeks on Tuesday after the ISM data, pulled back 0.2 percent to $1.3412, the euro was down 0.1 percent at $1.1245.
"Clearly, this is a challenging environment for the dollar," said Petr Krpata, currency strategist at ING.
After the Swedish central bank kept interest rates unchanged, as expected, the Swedish crown rose around 0.2 percent to 9.52 per euro.
As expectations of whether a deal to curb a global glut can be reached have waxed and waned, oil prices have been on a rollercoaster in recent days, but the prices edged up on Wednesday.
A gain of 35 cents to reach $47.61 a barrel was recorded by Brent crude LCOc1, the international benchmark. Having fallen to $45.32 on Sept. 1, it rose as high as $49.40 on Monday.
Other commodities were also lifted by the reduced expectations of a Fed hike. While gold hit a 2 1/2-week peak above $1,352 an ounce before pulling back, copper hit a two-week high at $4,683 a ton.

Christopher J. Mitchell

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