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GLOBAL MARKETS-Shares fall, dollar rises as markets wait for dovish Fed hints

Thu, 27th Aug 2020 12:09

* Graphic: 2020 asset performance http://tmsnrt.rs/2yaDPgn

* Graphic: World FX rates in 2020 http://tmsnrt.rs/2egbfVh

* Reuters Live Markets blog:
(Updates prices, adds commentary)

By Elizabeth Howcroft

LONDON, Aug 27 (Reuters) - Stocks fell on Thursday and the
dollar was up after two days of losses, as investors looked
ahead to the U.S. Federal Reserve Chair's speech at the virtual
Jackson Hole conference, at which he could signal tolerance for
higher inflation.

Wall Street hit new record highs on Wednesday and the MSCI
world share index also rose to its highest ever, with the
endless supply of cheap cash from central banks pushing up
big-cap tech companies.

But the rally petered out in the Asian session, with an
element of caution coming from the United States sanctioning
China over military action in the disputed South China Sea.

Market focus is squarely on the virtual Jackson Hole
conference, where Federal Reserve Chair Jerome Powell is
expected to drop policy hints when he speaks at 0910 EDT (1310
GMT).

The MSCI world equity index, which tracks
shares in 49 countries, was down 0.1% on the day at 1049 GMT,
while the MSCI's main European Index was down 0.3%.

The pan-European STOXX 600 was down 0.2%, while
U.S. stock index futures dipped, with U.S.-China tensions
dampening the mood.

CMC Markets UK analyst David Madden said the week's pattern
was a classic case of "buy the rumour, sell the fact" as
investors unwound their bullish positions from earlier in the
week.

"If you’re a trader starting the week on Monday you think
Powell is speaking on Thursday, we’re all expecting him to have
some sort of dovish stance, so you buy Monday, Tuesday,
Wednesday, when he’s actually giving the talk on Thursday you
wind down your positions," he said.

"You trade in advance in the expectation that a dovish
speech will be delivered and then you square up your position a
few hours before hand," he said.

The Fed has already cut interest rates to zero, started
bond-buying and approved a massive lending programme.

Its balance sheet has expanded by as much as $3 trillion
since the start of the pandemic - far more than that of the
European Central Bank and Bank of Japan.

The dollar ticked up after two consecutive days of falling.
Against a basket of currencies, it was up 0.1% at 92.955.

The riskier Aussie and Kiwi dollars gained
versus the U.S. dollar, while the euro was slightly lower at
$1.18055.

Australia's Victoria state — epicentre of the nation's
second wave of COVID-19 infections — reported its lowest one-day
rise in new cases in nearly two months.

The offshore Chinese yuan hit a 7-month high
versus the dollar overnight, but erased losses as the European
session progressed.

European bond yields fell, with Germany's benchmark 10-year
Bund yield down 4 bps at -0.451%.

Oil prices were mixed, with Brent crude futures for
October, which expire on Friday, up 0.1% at $45.61 a barrel by
1055 GMT. U.S. West Texas Intermediate (WTI) crude
futures were down 0.4% at $43.21 a barrel.

Hurricane Laura, a massive hurricane in the Gulf of Mexico,
has pushed the market higher this week, but the storm is not
expected to affect supplies much because oil and product
inventories are high.

Gold prices fell as investors took profits before Powell's
speech, with spot gold down 0.8% to $1,938.68 per ounce by 1056
GMT.

Also in focus is the Republican National Convention. U.S.
President Donald Trump will speak live from the White House on
Thursday.

(Reporting by Elizabeth Howcroft; Editing by Mark Potter)

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