On 12 September, 2016 – US stocks stage strong rally
Dovish remarks from Fed governor Lael Brainard relieved investor angst about Fed interest rates.
United States
US stocks rallied Monday after Friday’s steep selloff. Stock markets in Asia and Europe tumbled as investors fretted over the possibility of an imminent interest rate increase in the United States. However, in the US, the Dow Jones industrials were up 1.3 percent, the S&P climbed 1.5 percent and the Nasdaq added 1.7 percent.
While statements last week from various Fed officials raised concerns that the Fed could tighten policy faster than expected, some of those worries abated Monday. Fed governor Lael Brainard gave a highly anticipated speech Monday. A leading proponent of continuing the Fed’s stimulus campaign said that she still favored “prudence” in raising interest rates despite recent signs of economic progress. The speech was the last scheduled statement by a Fed official before the September 20 and 21 FOMC meeting. The Fed imposes a blackout period before its meetings, held roughly every six weeks. On Friday, the stock market took a sharp hit on fears that the Fed and other central banks might be moving to slightly more restrictive monetary policies.
Those remarks came after Federal Reserve Bank of Boston President Eric Rosengren on Friday heightened expectations for an interest rate increase later this year. Federal Reserve Bank of Atlanta President Dennis Lockhart, a centrist seen as aligned with Fed Chair Janet Yellen, said Monday economic conditions warrant debate about raising rates at the central bank’s meeting next week, adding officials don’t face an urgent need to act immediately.
Hewlett Packard stock edged higher after the company agreed to buy Samsung’s printer business for $1.05 billion. That helped take technology stocks higher. Apple and Broadcom also advanced. Samsung Electronics dropped after the company urged consumers globally to stop using its Galaxy Note 7 phone after several dozen of them caught fire. Phone companies jumped following the worst drop since 2014 with the biggest gain in four months. Staples advanced.
These data reflect observations at 4:00 PM US ET. Gold at the afternoon London fixing was down US$6.25 to US$1,324.60. Copper futures were up 0.65 percent to US$2.11. WTI spot crude was up 19 US cents to US$46.07. Dated Brent spot crude was up 14 US cents to US$48.15. The US dollar was down against the yen, pound, Swiss franc and the Australian dollar. However, it declined against the Canadian dollar and was virtually unchanged against the euro. The Dollar Index was down 0.15 percent. The yield on US Treasury 30 year bond was up 1 basis point to 2.40 percent while the yield on the 10 year note was unchanged at 1.67 percent.
Europe
European markets continued to tumble into the new week. With virtually no new economic data, market players continued to be honed in on the US interest rate outlook. Friday’s sharp selloff in the US followed by Monday’s drop in Asia soured investors’ appetite for risk. Boston Federal Reserve President Eric Rosengren’s hawkish comments last Friday brought concerns about a near term rate increase back to the forefront. The FTSE and CAC were down 1.1 percent, the DAX lost 1.3 percent and the SMI was 0.7 percent lower.
Investors are also waiting for the Bank of England announcement on Thursday. The Bank is unlikely to introduce new stimulus after reducing its key interest rate to a record low 0.25 percent last month. It will also maintain its asset purchase ceiling at £435 billion. The British Chambers of Commerce downgraded its growth projections for the UK citing weak consumer spending and a large reduction in investment. Despite issues surrounding the Brexit, the UK is expected to avoid a recession.
E.ON sank after completing the Uniper spin-off as planned. RWE declined. Industrial gas maker Linde tumbled after the company and Praxair agreed to terminate talks about a possible merger. Air Liquide also was lower. Banks including Commerzbank, Deutsche Bank, BNP Paribas, Société Générale and Crédit Agricole declined. BMW, Daimler and Volkswagen retreated. Peugeot and Renault also were lower. In London, Associated British Foods tumbled after the company warned that Primark’s margins would be affected by currency movements following Britain’s decision to quit the European Union. AstraZeneca advanced on a broker upgrade. Lloyds Banking Group, Royal Bank of Scotland, Standard Chartered and Barclays declined.
Asia Pacific
Stocks tumbled after hawkish comments from several Federal Reserve officials and renewed concerns about North Korea’s nuclear test spooked investors. The probability for a September rate increase inched up somewhat after Fed officials Eric Rosengren, Daniel Tarullo and Robert Kaplan signaled openness to an increase in 2016 to prevent the economy from overheating.
The Shanghai Composite declined 1.8 percent — its biggest single day loss since July 27 on worries that central banks may be running out of ways to support economic growth. The Hang Seng plunged 3.4 percent.
The Nikkei tumbled 1.7 percent as increased risk aversion revived demand for the yen and media reports suggested that the Bank of Japan is studying several options to steepen the bond yield curve to encourage short and medium-term corporate lending. Better than expected core machinery orders data for July indicating a pickup in capital spending had little impact on investor sentiment before next week’s FOMC and BoJ meetings. Nippon Steel & Sumitomo Metal, Toshiba, Mitsubishi Materials, Mitsumi Electric, Sumitomo Metal Mining, Alps Electric and Sumco dropped. Agrochemical manufacturer Kumiai Chemical Industry sank after the company downgraded its full-year operating profit forecast.
Both the S&P/ASX and All Ordinaries dropped 2.2 percent. Lower commodity prices dragged down resource stocks, with BHP Billiton, Origin Energy, Santos, Fortescue Metals Group and Newcrest Mining all closing lower. The big four banks also dropped. Novogen jumped after winning FDA investigational new drug application approval.
The Kospi slid 2.3 percent as investors fretted over the rise in geopolitical tensions and the possibility of a Fed rate increase in September. The Sensex tumbled 1.5 percent thanks to the hawkish comments from several Federal Reserve officials that bolstered the US dollar.
Looking forward
China releases August industrial production and retail sales. Italy posts July industrial production. The UK reports consumer and producer price indices. Germany releases September ZEW survey.
Global Stock Markets
*Note — all releases are listed in local time.
Source: Fidelity
Fidelity disclaimer:
The objective of this page is to present users with objective news, information, data and guidance on personal finance topics drawn from a diverse collection of sources including affiliated and non-affiliated financial services publications. Content is not intended to provide tax, legal, insurance or investment advice and should not be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any security or investment by any Fidelity entity or any third-party.
Jesmond Mizzi Financial Advisors Disclaimer:
This article, does not intend to give investment advice and the contents therein should not be construed as such. Jesmond Mizzi Financial Advisors Limited is licensed to conduct investment services by the MFSA and is a Member Firm of the Malta Stock Exchange. The directors or related parties, including the company, and their clients are likely to have an interest in securities mentioned in this article. For further information contact Jesmond Mizzi Financial Advisors Limited at 67, Level 3, South Street, Valletta, or on Tel: 21224410, or email [email protected]