LONDON (Reuters) - World markets appear to have stabilised after a jittery start to the week, with Chinese benchmark indices rallying to close higher on Tuesday as eyes drift to the Senate confirmation hearing for Federal Reserve chair nominee Jerome Powell later in the day.
Some anxiety on Monday about overcooked semiconductor stocks and tightening Chinese monetary policy and regulation seemed to dissipate overnight, with the S&P500 clocking another record intraday high before closing just a fraction lower. Hopes for some breakthrough on U.S. tax cuts as soon as Thursday helped buoy sentiment.
The Vix volatility gauge remained calm below 10 percent having hit an all-time low of 8.56 percent on Friday. Powell’s hearing is unlikely to affect expectations for a Fed rate rise next month but may flesh out his thinking about the longer horizon for policy and see him quizzed on how he would react in emergency situations.
The dollar and U.S. Treasury yields were higher overnight, helped by news of U.S. new home sales at a 10-year high in October. The 2-10-year Treasury yield curve, however, continued to flatten slightly to below 58 basis points for the first time in 10 years.
A sturdier greenback helped dollar/yen bounce from 2-month lows set on Monday amid speculation Bank of Japan policymakers may be looking at altering its super-loose monetary policy as the economy expands. Talk of central bank tightening is rife across Asia, with the Bank of Korea expected to lift interest rates on Thursday for the first time in six years.
Oil prices slipped back as traders awaited Thursday’s OPEC meeting where key producers including Russia will discuss whether to continue with the cuts after they agreed last January to withhold 1.8 million bpd of output. Energy markets reckon there’s some doubt this time about the commitment to tightened supplies.
Sterling was steady as the Bank of England’s latest stress tests of Britain's banks show the sector could cope with a "disorderly" Brexit without needing to curb lending or be bailed out by taxpayers. The focus will now drift to Ireland where the chances of a snap election have risen amid a likely no-confidence vote in the government on Tuesday.
A December election in Ireland would complicate the chances of a breakthrough in Brexit talks at the Dec. 13-14 EU summit because details of what happens on the Irish border after Brexit have not yet been agreed. Dublin and Brussels have insisted this is a precursor to moving negotiations on to a second phase involving a future trade deal between the UK and EU.
Euro/dollar was a touch lower on Tuesday, meantime, with little initial reaction to above-forecast French consumer confidence readings for November.
South Africa’s rand was slightly firmer, holding near a five-week high touched in the previous session after the country dodged a double downgrade of its debt. President Jacob Zuma has called for concrete efforts to boost growth after S&P Global downgraded the local currency debt to junk.
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Editing by Hugh Lawson