Fed should raise interest rates this year, Williams says

Crude oil fell 0.1 percent to $42.71 a barrel in NY.

Taiwanese shares ended the day up 0.5 per cent and at their highest level in 13 months.

But data showing weak USA productivity weighed on USA bond yields, with the 10-year notes yield dipping to 1.5367 per cent from Monday’s two-week high of 1.616 per cent.

Hong Kong’s Hang Seng index rose 0.6 per cent, hovering close to its highest level since November. The yen and the pound climbed, while currencies of commodity-exporting nations like Norway and Australia extended rallies that made them the two best-performing developed-market currencies this week.

But respondents expected the core personal consumption expenditure price index, the Fed’s preferred inflation gauge, to average just 1.8 percent in the fourth quarter and stay below the central bank’s 2 percent target even at the end of 2017.

Wall Street eked out gains on Tuesday following a strong session for European stock markets, with Germany’s DAX index .GDAXI jumping 2.5 percent to its highest of 2016 due to strong earnings from reinsurer Munich Re (MUVGn.DE) and telecoms group Altice (ATCA.AS).

“Following strong USA payroll data last week, we are in a sweet spot where the United States economy seems to be doing okay while the chances of a near-term Fed rate hike are still relatively small”, said Hirokazu Kabeya, chief global strategist at Daiwa Securities.

“The release of the third consecutive decline in quarterly USA productivity – the worst run since at least 1980 – does not bode well for the prospects for the dollar”, Morgan Stanley head of currency strategy, Hans Redeker, said.

“We’re probably going to consolidate and then head higher”, John Canally, chief economic strategist for LPL Financial, said of the United States stock market.

U.S. bond yields fell after a weak report on USA productivity, with the 10-year notes yield dipping to 1.538 per cent from Monday’s two-week high of 1.616 per cent.

Longer-dated US Treasury prices rose after a weak report on US productivity and a reverse auction in which the Bank of England failed to meet its long-dated bond purchasing target boosted the appetite for US government debt. “That in turn would mean the Fed will not need to raise rates”, said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management.

The dollar was weak against most other currencies following soft United States data. The greenback was 0.5 per cent weaker against the Japanese yen.

The euro was at $1.1168 from $1.1183 in USA trade, and was changing hands at 113.28 yen from 113.25 yen. The WSJ Dollar Index, which measures the USA currency against 16 others, was flat as the greenback fell against higher-yielding currencies.

The 10-year United Kingdom gilts yield was at 0.577% after hitting a fresh record low of 0.563% after the BoE fell £52m short of its target to buy more than £1bn of long-dated United Kingdom government debt.

The pound took a knock on Tuesday after Bank of England policymaker Ian McCafferty said more monetary easing was likely to be needed if the UK’s economic decline worsened.