Market update: Stocks boosted by Summer’s withdrawal from Fed candidacy – 16.09.2013

Source: Henderson Global Investors

US equities finished positively on Friday (Dow Jones +0.5%; S&P 500 +0.3%), the Dow Jones banking its strongest week of gains since January. Chipmaker Intel was a key driver of performance at the end of the week, its shares rising to US$23.44 after a broker upgrade. Economic data was a mixed bag. US retail sales rose by a seasonally adjusted 0.2% in August, slower than the 0.4% that analysts has predicted; although shoppers increased bigger ticket purchases such as cars and appliances, clothing store receipts dropped sharply. Separately, the Thomson Reuters/University of Michigan’s consumer sentiment index fell to its lowest level since April, seemingly impacted by both the Syrian crisis and speculation about the Federal Reserve (Fed) tapering its asset purchases.

Overnight and this morning, global stocks are trading at five-year highs and the dollar is slipping as investors react to two key developments (FTSE 100 +0.6%; FTSE Eurofirst 300 +0.6%). First, a slide in oil prices is providing some relief, triggered by reports that the US and Russia have agreed a framework for the destruction of Syria’s chemical stockpile. Second, and arguably having a wider-ranging impact, is news that former US Treasury Secretary Larry Summers has withdrawn his candidacy to succeed Ben Bernanke as the next Fed Chairman. Mr Summers was widely viewed as a ‘hawkish’ candidate, one who might be keen on pursuing a faster pace of tapering. This leaves the seemingly more ‘dovish’ Fed vice-chair Janet Yellen as the front-runner. Crucially, the Fed meets this week on Tuesday and Wednesday to decide whether to start reducing its asset purchase programme – and if so, by how much.