Earnings and commodities keep stocks bulls happy

World stocks stayed near record highs on Tuesday, as a flurry of U.S. earnings and a rally in commodity markets helped underpin one of the most durable bull runs of recent history. 

Stronger profits from investment bank Morgan Stanley and healthcare majors Johnson & Johnson and UnitedHealth looked set to keep Wall Street’s rally intact when it reopens [.N] after largely flat morning on Europe’s big bourses. 

The dollar .DXY meanwhile was enjoying its longest winning streak since February, posting a fourth day of gains supported by broad-based weakness for the euro and the pound. [/FRX] 

It had been lifted overnight, along with interest rate-sensitive 2-year Treasury yields, by reports that U.S. President Donald Trump might pick Stanford University economist John Taylor to lead the Federal Reserve after Janet Yellen’s term ends next year. 

Taylor is an advocate of a rules-based approach to interest rate policy that would likely see official Fed rates much higher than at present - at least 3.5 percent according to some economists. 

The pop in short-yields was not matched at the long end though and the 2-to-10 year U.S. yield curve hit its shallowest in more than a year before markets began to price in a bit more caution in European trading.

German Bunds and UK gilts had initially followed U.S. yields higher. British and euro zone inflation figures both came in strong to bolster bets on the first UK rate rise in over a decade and stimulus withdrawal from the ECB.

The moves then unraveled amid central banker chatter GBP= that was seen as being more mixed than of late. 

The euro EUR=EBS dropped to $1.1754 while sterling GBP=D3 fell half a percent on the day to as low as $1.3192 as 10-year gilt yields dropped to a 3-week low. [GVD/EUR] [FRX/] 

Silvana Tenreyro, a new member of the Bank of England’s monetary policy committee, said upward pressure on UK inflation from sterling’s weakness would start to wane in the coming months.

Earlier on Tuesday, data showed Britain’s inflation rate hit 3 percent, above the BoE’s 2 percent target but in line with expectations.