By Riva Gold
Markets calmed Thursday after Wall Street climbed to record highs for a third consecutive session.
The Stoxx Europe 600 was flat midday, following a mixed session in Asia. U.S. markets were closed Thursday for Thanksgiving, while the WSJ Dollar Index was little moved.
The Dow Jones Industrial Average, the S&P 500 and the Russell 2000 all closed at record highs in light trading on Wednesday, while the dollar climbed to its highest since 2002 on expectations for stronger U.S. growth and higher interest rates.
"The reflationary theme is sucking money back into the U.S. stock market and injecting huge shock waves through foreign exchange markets," said Jane Foley, currency strategist at Rabobank, referring to expectations that tax cuts and less regulation will boost corporate profits and U.S. growth.
The latest leg higher followed strong U.S. economic data on Wednesday including durable goods orders, a measure of consumer sentiment and fresh hints the Federal Reserve would likely raise interest rates in December.
Fed officials said a rate rise was possible "relatively soon" if incoming data continued to show an improving economy, minutes from the bank's November meeting showed.
U.S. government bonds sold off Wednesday, sending the 10-year Treasury yield to its highest since July 2015, while the Dow, S&P 500 and Russell 2000 notched record closing highs for the 16th, 13th and eighth time this year respectively.
"The market is bringing us into line with what the Fed was telling us anyway," said James Athey, investment manager at Aberdeen Asset Management.
Even ahead of the election, centralbanks had softened their dovish stance and murmurs about fiscal policy and infrastructure spending were starting to raise expectations for growth and inflation.
"That narrative was nascent leading up to Trump, and he just turbocharged it," Mr. Athey said.
On Thursday, markets in Asia mostly moved lower amid concerns that higher U.S. interest rates and a stronger dollar could hurt emerging markets and worsen capital flight from Asia. South Korea's KOSPI index fell 0.8%, while Hong Kong's Hang Seng Index fell 0.3%.
Japan's Nikkei Stock Average advanced 0.9%, however, as a weaker yen boosted shares of exporters. The dollar was last up 0.4% against the yen at Yen113.0750 after rising to as high as Yen113.5310 earlier. The yen has fallen over 7% against the dollar so far this month.
The euro inched up 0.2% against the dollar to $1.0563 on Thursday after closing at its lowest against the dollar since March 2015, pressured bothby the appreciation of the dollar and concerns over political risks in the eurozone.
The European Central Bank said Thursday that the currency area's economy could be affected by U.S. trade policy changes and possible spillover effects from higher inflation and U.S. interest rate expectations.
Economic policies introduced by President-elect Donald Trump "will likely become more inward-oriented," the ECB wrote in its biannual Financial Stability Review.
In bond markets, the yield on the 10-year German government bond was steady at 0.271% from 0.277% on Wednesday. 10-year Japanese government bond yields fell to 0.033%. Yields move inversely to prices.
Willa Plank and Tom Fairless contributed to this article
Write to Riva Gold at firstname.lastname@example.org
(END) Dow Jones Newswires
November 24, 2016 07:41 ET (12:41 GMT)
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