Cautious Fed keeps stocks happy, oil slips from highs

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

Major European bourses were broadly steady, while U.S. stock futures were just a touch firmer , with overall trade subdued given a public holiday in Britain.

The Europe-wide STOXX 600 was on course to end August with a more than 2% rise – its seventh month of gains in what would be its longest such winning run in over eight years.

Asian stocks hit a two-week high and Japan’s blue-chip Nikkei closed up 0.5%, leaving MSCI’s world stock index hovering at record highs.

Positive sentiment in equity markets was underpinned by 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.

“The market is more focused on the medium-term, so any weakness in equity markets has been seen as an opportunity to buy the dips and Powell has helped preserve these trends,” said Pictet Wealth Management strategist Frederik Ducrozet.

“We are going from great to good — the outlook is not as great as it was earlier this year but it’s still consistent with further equity market gains.”

Chinese shares remained the outlier, with the U.S.-listed shares of gaming firms such as NetEase (NASDAQ:NTES) Inc down on signs of further regulation.

Chinese regulators slashed the amount of time players under the age of 18 can spend on online games to an hour on Fridays, weekends and holidays, state media reported on Monday.

The new rules come amid a broad crackdown by Beijing on China’s tech giants, such as Alibaba (NYSE:BABA) Group and Tencent Holdings (HK:0700) that has hammered Chinese shares traded at home and abroad.

OIL OFF HIGHS

Oil prices pulled back from a four-week high as Hurricane Ida weakened into a Category 1 hurricane within 12 hours of coming ashore.

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

Focus turned to a meeting of the Organization of the Petroleum Exporting Countries and its allies on Wednesday, with sources telling Reuters the group is likely to keep its oil output policy unchanged and continue with its planned modest production increase.

Brent crude futures were a touch lower on the day at $72.66 a barrel, holding below four-week highs hit earlier in the session. They rose more than 11% last week in anticipation of disruptions to oil production from Hurricane Ida.

U.S. oil fell 0.4% to $68.46 a barrel, having jumped a little more than 10% 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.”

In bond and currency markets, it was the Fed’s dovish tone that held sway, with Friday’s key U.S. jobs report in focus.

The 10-year U.S. Treasury yield was steady at around 1.30% , while the dollar index — which measures the greenback against a basket of currencies — steadied just above a two-week low.

The euro was steady at $1.1800, having touched a three-week peak earlier, while the dollar was little changed at 109.87 yen.

“If we get a (U.S. payrolls) number close to a million that would increase the odds of taper being announced in September, but if the number is line with expectations then there’s a 50-50 chance for a September move,” said Vasileios Gkionakis, global head of FX strategy at Lombard Odier Group.