Tuesday 25 October 2016

US interest rate hike prospects spook global stocks

Published 09/06/2015 | 09:26

Federal Reserve Chair Janet Yellen
Federal Reserve Chair Janet Yellen

European shares followed Asian stocks lower on Tuesday as speculation intensified that the U.S. Federal Reserve could raise interest rates sooner than many expect, though this failed to give the dollar a significant boost.

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Concern the Fed could hike rates for the first time since 2006 as soon as September -- triggered by forecast-beating jobs data last Friday -- pushed U.S. stocks lower on Monday before spreading across the globe.

The pan-European FTSEurofirst 300 index fell for the sixth consecutive day to hit a one-month low. It was last down 0.3 percent in early deals. HSBC gained 0.2 percent, however, after announcing a plan to cut up to 50,000 jobs and take an axe to its investment bank.

"We're agnostic as to whether the rate rise will be September or November ... the balance of probabilities suggests it might be September," Coutts global equity strategist James Butterfill said.

Earlier, Tokyo's Nikkei index suffered its biggest fall in nearly a month, down 1.8 percent on U.S. rate worries and uncertainty over whether Greece can clinch a deal with its creditors to avoid default.

MSCI's main index of Asia-Pacific shares outside Japan shed 0.9 percent to a fresh 10-week low.

Chinese shares eased after soft inflation data suggested the economy was still struggling, even through Beijing is expected to add more policy stimulus.

The CSI300 index of the largest listed companies in Shanghai and Shenzhen fell 0.7 percent.

MSCI will soon announce whether to include China 'A' shares in its Emerging Markets Index, a decision the index publisher says would draw $400 billion to China stocks over time.

The fall on Wall Street saw the Dow Jones Industrial average fall 0.5 percent and slip into a loss for 2015.

The dollar held steady against a basket of currencies , still on the defensive after reports on Monday that President Barack Obama had expressed concern about the greenback's strength. The White House denied he had said this

"Regardless of what he may or may not have said in the confidential meetings the press had no access to, in my view the reaction illustrates that the currency market is not yet ready to change over to more dollar strength, positive U.S. data or not," said Lutz Karpowitz, currency strategist at Commerzbank.

Falls in U.S. Treasury yields to levels touched before Friday's jobs data also eroded support for the dollar.

The euro was last down 0.1 percent at $1.1280 while the yen was flat at 124.46 per dollar.


Concerns about a lack of progress in talks between Greece and its creditors have weighed on the euro in recent weeks.

Athens indicated on Monday it was willing to compromise but a European Union official said there had been "no new developments" in the search for a deal.

German 10-year government bond yields dipped 1 basis point to 0.88 percent, pulling away from last week's highs just below 1 percent.

The prospect of more stimulus in China helped lift oil prices a day after data showing Chinese oil imports fell in May pushed them lower. Brent crude was up 22 cents a barrel at $62.90.

The dollar's relative weakness lifted gold but the prospect of higher U.S. interest rates limited gains. Spot gold last trade at around $1,175.80 an ounce.


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