Business World

Friday 9 December 2016

Shares, bonds rally, dollar off as Yellen hedges on rates

Wayne Cole

Published 30/03/2016 | 07:06

Lack of performance a global issue for investors in actively-managed equity funds. Photo: Bloomberg
Lack of performance a global issue for investors in actively-managed equity funds. Photo: Bloomberg

Asian shares rallied on Wednesday as markets pared back expectations for how fast and how far US interest rates might rise this year, bruising the dollar and boosting sovereign bonds.

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MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS reversed four sessions of losses to jump 1.4pc. South Korea hit its highest for the year so far, while Shanghai bounced 1.6pc.

Financial spreadbetters expected opening gains of 0.5 to 0.6pc for the FTSE 100, DAX and CAC.

Japan's Nikkei was a rare loser as a rise in the yen against the dollar nudged the index down.

The shift came after Federal Reserve Chair Janet Yellen emphasised global dangers to growth and inflation, and thus the need to proceed "cautiously" on tightening policy.

"Her comments stand somewhat in contrast to recent remarks by other FOMC members and are more clear in respect to downside risk factors," said Michael Gapen, chief US economist at Barclays.

"Hence, we see the comments as an effort to exert control over the message and, in doing so, tilt expectations for policy rate hikes in a decidedly dovish direction."

Debt markets rallied hard in response with yields on 10-year US paper US10YT=RR dropping 7 basis points to one-month low of 1.80pc.

Fed fund futures jumped as investors priced out any a chance of a hike in April and only a slim probability of a move in June. The December contract implies a rate of just 57 basis points compared to the current 37 basis points.

On Wall Street, technology shares led gains in major indexes and both the S&P 500 and Dow closed at their highs for 2016. The Dow rose 0.56pc, while the S&P 500 gained 0.88pc and the Nasdaq 1.67pc.

Dollar bulls were not so pleased and the US currency fell across the board. The dollar index was down at 95.093, having suffered its biggest one-day fall in nearly two weeks.

The greenback dipped to 112.34 yen and away from a two-week high of 113.80. It also lost ground on the euro to $1.1300, nearing the March peak of $1.1342.

Commodity currencies gained with the Australian dollar back above 76 U.S. cents and not far off a recent 8-1/2 month peak of $0.7681.

The drop in the US dollar helped oil prices regain a little ground, as did a forecast that US stockpiles may have grown by less than first thought.

U.S. crude CLc1 added 29c to $38.57 a barrel, after falling around 3pc on Tuesday. Brent LCOc1 rose 24c to $39.38. [O/R]

Gold was up at $1,236.40 an ounce, after rising almost 2pc overnight.

Reuters

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