Shares set for weekly gain, FX, bonds await Warsh's Jackson Hole debut

By Alun John and Stella Qiu

LONDON/SYDNEY, Aug 28 (Reuters) - Oil prices were heading for their first weekly fall in three weeks on Friday, helping lift global stocks as investors weighed developments in the Gulf and awaited potentially market-moving remarks from Federal Reserve Chair Kevin Warsh.

Brent rebounded to trade flat on the day after early losses and was last at $89.7 a barrel, near the middle of its trading range since mid-June. [O/R] 

The benchmark was nevertheless on track to lose 5% for the week, with attention focused on a possible deal between Iran and Oman on managing traffic through the Strait of Hormuz, though this would also require the U.S. to meet certain Iranian conditions.     

The drop in oil prices, combined with a rally in technology stocks after Nvidia's results on Wednesday, helped MSCI's all country world share index gain 0.5% this week and move back towards the record high reached earlier in the month. 

European shares rose 0.5% on Friday, recovering from Thursday's losses and putting them on course for a small weekly gain. Asia-Pacific shares were also slightly higher, though U.S. futures dipped. [.EU] 

WARSH IN FOCUS

The day's main event is still to come, with Warsh due to speak at the annual Jackson Hole Symposium. 

Three Fed officials have already warned about sticky inflation, but Warsh has so far resisted giving forward guidance on the path of interest rates.

"Jackson Hole is the focal point for global markets because investors are looking for clarity on the Fed’s reaction function rather than simply another hawkish or dovish soundbite," said Bruno Schneller, managing partner at Erlen Capital Management. 

"The question is what would actually move the needle for policy from here, particularly as the Fed balances inflation risks against the labour-market outlook." 

"That makes Warsh's message important not just for the next meeting, but for how markets think about the path of rates over the coming months," Schneller said. 

Futures imply about a one-in-three chance of a Fed rate increase at its September 16 meeting and fully price in a hike by December.    

Warsh's first few months as chair have been challenging. Longer-dated Treasury yields have risen since the Fed's July meeting, which some investors attributed to a lack of concrete measures to tackle stubborn inflation.

He is also presiding over a divided Fed, with several policymakers calling for higher rates to curb price pressures. At the same time, a surprise U.S. Treasury move last week to expand its buyback programme in an effort to lower yields has added another layer of complexity.

On Friday, the 30-year Treasury yield edged up 2 basis points to 5.21%, though it remained down 8 basis points for the week. It briefly topped 5.3% last week for the first time since 2007. 

The benchmark 10-year U.S. Treasury yield was up 2 bps at 4.69%.

Higher long-dated yields are not just a U.S. phenomenon. The German and French 30-year yields on Friday each passed last week's levels to fresh 15- and 17-year highs respectively. [GVD/EUR]

Germany's was last at 3.79% and France's was 4.93%.

Currency markets were subdued, with the dollar a touch firmer against its main peers. The dollar was up 0.2% on the rate-sensitive Japanese yen at 159.67 yen, while the euro was down a touch at $1.1646 and sterling was at $1.3587. [FRX/]     

In commodity markets, gold was softer on the day and the week at $4,593 an ounce.

(Reporting by Alun John and Stella Qiu. Editing by Kim Coghill, Mark Potter and Sharon Singleton)