* Wall Street expected to dip as yields brush 1.75%
* European and Asia supported by Fed's bullish view
* Fed sees 2021 GDP growth of 6.5%, unemployment at 4.5%
* Fed says will keep rates low through 2023
* Weekly jobless claims higher than expected
By Marc Jones
LONDON, March 18 (Reuters) - World share markets edged
higher on Thursday after the U.S. Federal Reserve promised to
keep its support in place, though lower Wall Street futures and
another rise in global bond yields and the dollar showed not
everyone was convinced.
MSCI's 50-country world index .MIWD00000PUS was near
record highs after the Fed had also predicted bumper U.S. growth
this year .N , and a jump in German car shares hoisted
Germany's DAX .GDAXI to a new all-time peak in Europe. .EU
For traders worried about it all being snuffed out by rising
borrowing costs, though, euro zone government bond yields were
tracking upward moves in benchmark 10-year U.S. Treasuries as
they climbed to a 14-month high of 1.75%. GVD/EUR That also revitalised the dollar =USD , which had briefly
dropped to a two-week low after the Fed had pushed back against
speculation it could be starting to think about interest rate
hikes. /FRX
The U.S. central bank sees the economy growing 6.5% this
year, which would be the largest jump since 1984. Inflation is
expected to exceed its preferred level of 2% to 2.4%, although
it is expected to drop back in subsequent years.
"I don't know what the Fed can do to stop a rise in yields
that is based on stronger fundamentals," said BCA chief global
fixed income strategist Rob Robis, pointing to the $1.9 trillion
U.S. coronavirus relief package that will drive growth.
"The path of least resistance is still towards higher
yields," he said. "The U.S. Treasury market leads the world and
every bond market responds."
It was another jam-packed day of central bank action on
Thursday too.
Norway signalled a rate hike was possible this year
There were reports of the Bank of Japan loosening
its tight grip on yields the Bank of England said
it was seeing recovery signs while Turkey jacked up
its rates to 19% after another torrid month for the lira.
The dollar index USD= , which measures the greenback
against a basket of its peers, rose as much as 0.4% to 91.761.
It had dropped to 91.300 after Wednesday's Fed meeting. /FRX
That pulled the euro back to $1.1915 EUR= from a one-week
high of $1.19900. Sterling GBP= dribbled lower after the BoE
statement, Norway's crown reached its strongest against the euro
in 13 months, and the dollar gained 0.3% to 109.180 yen JPY= .
"The question remains whether the Fed can actually arrest
the latest spike in U.S. Treasury yields, especially given that
the improvement of U.S. fundamentals will continue," said
Valentin Marinov, head of G10 FX research at Credit Agricole in
London. "The renewed spike of UST yields should continue to
support the dollar versus low-yielders like the euro, yen and
the Swiss franc."
INFLATION PALPITATIONS
Not everything went in the dollar's favour. The number of
Americans filing new claims for unemployment benefits
unexpectedly rose last week, data showed ahead of the Wall
Street restart. Earlier the Australian dollar rose to a two-week high of
$0.7849 AUD=D4 after data showed the nation's economy created
more than twice as many jobs as expected in February.
Its New Zealand counterpart lost momentum,
however, after the country posted a surprise contraction in
fourth-quarter GDP. Overnight, Asia-Pacific shares excluding those in Japan
.MIAPJ0000PUS rose 0.8%. Stocks in China .CSI300 rose the
same. Australia .AXJO fell 0.7%.
Wall Street futures were also pointing lower, with S&P 500
futures ESc1 down 0.4% and Nasdaq futures down over 1% NQc1 ,
amid the pressure higher U.S. rates tend to put on tech firms
with stratospheric valuations. .N
While inflation is expected to reach 2.4% this year, Fed
Chair Jerome Powell called it a "temporary" surge that will not
change the Fed's pledge to keep its benchmark overnight interest
rate near zero.
With long-term Treasury yields climbing again though in
Europe, the yield curve was steepening. The spread between
two-year and 10-year U.S. yields US2US10=TWEB , the most-keenly
monitored part of the yield curve, rose to 155 basis points, the
steepest since September 2015.
The 10-year inflation break-even rate hit 2.3%, indicating
inflation expectations US10YTIP=RR are now at their highest
since January 2014.
The reaction in commodity markets was a small dip in Brent
oil prices to $67.6 a barrel. Traders also pointed to rising
U.S. crude inventories and expectations of weaker demand in
Europe, where the coronavirus vaccine roll out is faltering.
Gold XAU= dipped 0.3% to $1,737 per ounce.
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Global assets http://tmsnrt.rs/2jvdmXl
Global currencies vs. dollar http://tmsnrt.rs/2egbfVh
Emerging markets http://tmsnrt.rs/2ihRugV
MSCI All Country World Index Market Cap http://tmsnrt.rs/2EmTD6j
Rising U.S. Treasury yields https://tmsnrt.rs/3cNEpX5
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