Cautious Fed keeps world stocks happy, oil slips from highs

World stocks hovered around record highs on Monday, confident the US Federal Reserve is no rush to step away from massive stimulus, while oil prices fell as Hurricane Ida weakened after forcing precautionary shutdowns of US Gulf oil production.

Major European bourses were broadly steady, as were US stock futures , and overall trade was subdued with London out for a public holiday.

The Europe-wide STOXX 600 (.STOXX) traded flat, but was on course to end August with a more than 2 per cent rise - its seventh straight month of gains in what would be its longest such winning run in over eight years.

Asian stocks rallied to a two-week high (.MIAPJ0000PUS) and Japan’s blue-chip Nikkei (.N225) closed up 0.5 per cent, leaving MSCI’s world stock index (.MIWD00000PUS) hovering at record highs.

Underpinning positive sentiment in global equity markets was Friday’s Jackson Hole speech by Federal Reserve Chair Jerome Powell in which he said tapering of stimulus measures could begin this year, but added the central bank would remain cautious.

“Powell broke little new ground on the Fed’s outlook for the economy and its likely policy path,” said Mark Haefele, chief investment officer at UBS Global Wealth Management.

“However, it did have a dovish tilt, with clear investment implications that support the continuation of the reflation trade.”

Oil prices headed lower, meanwhile, pulling back from a four-week high as Hurricane Ida weakened into a Category 1 hurricane within 12 hours of coming ashore and attention turned to an OPEC meeting on Wednesday to discuss a further output boost.

Nearly all US offshore Gulf oil production, or 1.74 million barrels per day, was suspended in advance of the storm.

Brent crude futures were down 47 cents, or 0.7 per cent, at $72.19 a barrel. They rose more than 11 per cent last week in anticipation of disruptions to oil production from Hurricane Ida.

US oil fell 1.2 per cent to $67.95 a barrel, having jumped a little more than 10 per cent over the last week.

“Hurricane Ida will dictate oil’s near-term direction,” said Jeffrey Halley, senior market analyst at OANDA. “If Ida weakens and its path of destruction is lower than expected, oil’s rally will temporarily lose momentum here.”

OPEC+ is likely to keep its oil output policy unchanged when the group meets on Wednesday and continue with its planned modest production increase, three OPEC+ sources told Reuters.