Tuesday 27 September 2016

Global market rout: Wall St rises as Yellen hints at gradual interest rate hikes

Published 10/02/2016 | 09:10

Traders work at their desks in front of the German share price index, DAX board, at the stock exchange in Frankfurt, Germany, February 9. Reuters/Staff/Remote
Traders work at their desks in front of the German share price index, DAX board, at the stock exchange in Frankfurt, Germany, February 9. Reuters/Staff/Remote

Wall Street was higher on Wednesday, led by financial stocks, after Federal Reserve Chair Janet Yellen said conditions in the United States would allow the Fed to pursue "gradual" adjustments to monetary policy.

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However, tightening financial conditions driven by falling stock prices, uncertainty over China and a global reassessment of credit risk could throw the U.S. economy off track from an otherwise solid course, Yellen said in a prepared testimony to Congress.

'The chair of the US Federal Reserve, Janet Yellen, will give testimony as part of her semi-annual report on monetary policy'
'The chair of the US Federal Reserve, Janet Yellen, will give testimony as part of her semi-annual report on monetary policy'
FOMC's "dot plot" indicates that the US central bank might raise rates a further four times in 2016

Uncertainty over interest rates had hit bank stocks in recent days. Banking stocks were up, led by Citigroup (C.N). Goldman Sachs (GS.N), up 1.3 percent, gave the biggest boost to the Dow. The S&P financial sector .SPSY was up nearly 1 percent.

The Fed raised rates in December. But, since then, fears of a China-led global economic slowdown, along with oil's steep slide, have dampened the market's expectations for a hike in coming months.

"Unfortunately, we haven't been able to divorce ourselves from the themes that were prevalent last year," said Eric Wiegand, senior portfolio manager at the Private Client Reserve at U.S. Bank in New York.

Wiegand said the Fed and monetary policy remain at the forefront of investors' concern.

At 9:36 a.m. ET, the Dow Jones industrial average .DJI was up 56.77 points, or 0.35 percent, at 16,071.15.

The S&P 500 .SPX was up 10.97 points, or 0.59 percent, at 1,863.18 and the Nasdaq Composite index .IXIC was up 37.33 points, or 0.87 percent, at 4,306.10.

Asia Stocks
Asia Stocks

Six of the 10 major sectors were higher, led by the 1.11 percent rise in the technology sector .SPLRCT. Microsoft's (MSFT.O) 1.3 percent rise was the biggest positive influence on the S&P 500 and the Nasdaq.

Earlier, European shares rebounded back up on Wednesday from two-year lows reached in the previous session, helped by some solid corporate earnings and signs of corporate takeover activity.

The pan-European FTSEurofirst 300 index, which had fallen 1.6 percent to its lowest point since September 2013 in the previous session, recovered slightly to rise 0.4 percent.

The euro zone's blue-chip Euro STOXX 50 index gained 0.5 percent, while Britain's FTSE 100 advanced 0.6 percent.

In the UK, the London market rallied after a punishing start to the week that saw top flight shares sink to their lowest level in more than three years.

Banking stocks, which fell sharply in the previous two sessions, were among stocks bouncing back as the FTSE 100 Index lifted 47.6 points to 5680.4.

Investor fears over the ability of banking stocks to withstand slower global growth had sparked heavy share losses in the sector.

Shares in gambling group Unibet surged 12.6 percent after the company's fourth quarter underlying profit rose more than expected.

Norwegian mobile software company Opera also jumped 41.2 percent after a group of Chinese firms made a cash offer for the company, valuing it at 10.5 billion crowns, or $1.23 billion.

However, shares in Danish shipping and oil group A.P. Moller-Maersk slumped 9 percent after the company reported a fourth-quarter net loss after booking impairments of $2.6 billion on its oil assets.

According to Thomson Reuters StarMine data, roughly half of the companies in the pan-European STOXX 600 index have reported fourth quarter results, and 52 percent have beaten or met expectations while 48 percent have missed.

Asian stocks fell on Wednesday on growing concerns about the health of the world's banks, particularly in Europe, pushing investors into safer assets such as the yen, which stood near a 15-month high versus the dollar.

Spreadbetters expected the pessimism to carry over into Europe, forecasting a slightly lower open for Britain's FTSE .FTSE, Germany's DAX .GDAXI and France's CAC .FCHI.

S&P 500 e-mini futures ESc1 fell 0.4 percent, suggesting another weak start on Wall Street.

Japan's Nikkei .N225, which tumbled more than 5 percent Tuesday, suffered another bruising session and slid to a 16-month low.

The Nikkei was last down 4 percent with falling bank shares and a stronger yen continuing to take a toll on sentiment.

The adoption of negative interest rates by the Bank of Japan has provided no support, and the index has dropped more than 10 percent since the central bank's surprise easing on Jan. 29.

Australian stocks touched a 2-1/2-year trough and MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS fell 0.4 percent. The Chinese markets are closed this week for the Lunar New Year holidays.

Equity markets were struck early in the week by worries about the health of the euro zone banking sector, with very accommodative monetary policy seen crimping bank profits and their ability to repay debt.

Trouble for equities has meant a boon for sovereign debt, with the Japanese government bond 10-year yield JP10YTN=JBTC dropping into the negative for the first time on Tuesday before pulling back to 0.010 percent.

The U.S. Treasury benchmark yield US10YT=RR stood near a one-year trough and the 10-year German bund yield DE10YT=RR was at its lowest in 10 months.

The yen and Swiss franc, often sought in times of financial market turmoil, have also received strong boosts this week.

The dollar traded at 114.60 yen JPY= after sinking to a 15-month low of 114.205 overnight. The greenback traded close to 0.9695 franc CHF=, a four-month low touched on Tuesday.

"Concerns about European banks are contributing to the risk off mood in markets. In addition, U.S. data this month has been weak and Fed officials appear to be toning down on rate hikes," said Shinichiro Kadota, chief FX strategist at Barclays in Japan.

The euro was flat at $1.1287 EUR= after scaling a four-month high of $1.1338 overnight on the dollar's broader weakness.

After a tumultuous start to the week, markets looked to Federal Reserve Chair Janet Yellen's congressional testimony later in the session for fresh cues on the policy outlook, which may provide some relief for markets.

While Yellen is expected to defend the Fed's first rate hike in a decade last year and likely insist that further increases remain on track, any signs of a departure from such a stance in the wake of global growth concerns could provide risk assets with a breather.

"The narrative that she faces is that the U.S. economy and asset markets are being sucked into the downdraft caused by oil, China, emerging markets, reserve manager and sovereign wealth fund asset selling, commodities, currency war, the strong dollar, weak European banks, weak Japanese banks, weak US banks and policy ineffectiveness...to name a few," wrote Steven Englander, global head of FX strategy at Citi.

In commodities, crude oil prices trimmed some of their sharp losses suffered overnight. U.S. crude CLc1 was up 2.1 percent at $28.53 a barrel. Crude sank nearly 6 percent on Tuesday after weak demand forecasts from the U.S. government and a rout in equities pressured prices. [O/R]

Spot gold XAU= fetched $1,191.36 an ounce, within reach of a 7-1/2-month peak of $1,200.60 struck on Monday on the back of risk aversion in the wider markets.

Reuters

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