On 24 February, 2015 – Global markets rose ahead of Federal Reserve Chair Janet Yellen’s testimony
Stock indices were mostly higher Tuesday. Fed Chair Janet Yellen’s testimony calmed fears of an interest rate increase sooner than markets are expecting.
United States
The Dow Jones industrials and S&P once again hit record highs. The Dow was up 0.5%, the S&P advanced 0.3% and the Nasdaq edged up 0.1%. Investors cheered new signals that the Federal Reserve is unlikely to begin rising interest rates before June and news that Greece’s creditors approved another bailout.
Fed Chair Janet Yellen told the US Senate Banking Committee that the central bank remains ‘patient’ in deciding when to start increasing the fed funds rate. She noted that many Americans remain either under employed or unemployed, wage growth remains sluggish and inflation is running below the Fed’s 2% target. Ms Yellen’s testimony supports the view that a rate increase is not likely before June or even later this year. The Fed has kept its benchmark rate near zero since 2008.
Home Depot was up after the retailer reported fourth quarter financial results and a full-year outlook that exceeded expectations. The company also said it has authorized an US$18 billion buyback of its shares and boosted its quarterly dividend by 26%. First Solar jumped a day after the solar power company said it plans to combine some of its assets with SunPower into an investment vehicle that is intended to provide steady dividends. JPMorgan Chase gained on news the bank plans to save US$1.4 billion in annual expenses through cost cutting measures while charging large clients deposit fees. Macy’s declined after it reported better than expected earnings for the fourth quarter. However the retailer issued a forecast that fell short expectations. Toll Brothers was up after the homebuilder reported higher than expected quarterly profits and raised the low end of its full-year home delivery forecast.
Gold at the afternoon London fixing was down US$12.00 to US$1,192.50. Copper futures were up 2.0% to US$2.64. WTI spot crude was down 42 US cents to US$49.03. Dated Brent spot crude was down 21 US cents to US$58.69. The US dollar was down against euro and the Canadian and Australian dollars. It was virtually unchanged against the pound and Swiss franc. However, it advanced against the yen. The Dollar Index was down 0.1%. The yield on US Treasury 30 year bond was down 7 basis points to 2.59% while the yield on the 10 year note was down 8 basis points to 1.98%.
Europe
Stocks advanced Tuesday. Investors continue to be encouraged by developments in Greece after the country was granted a four month extension to its bailout. At the same time, Fed Chair Janet Yellen’s testimony to the Senate Banking Committee was monitored for indications of when the Fed would increase the fed funds rate. The FTSE and CAC each added 0.5%, the DAX advanced 0.7% and the SMI edged up 0.1%. The FTSE set a new all-time high, surpassing its previous high of 6,950.60 set on December 30, 1999. The FTSE has gained about 13% since a December 2014 low and is up nearly 6% this year.
The European Commission said that the economic reform proposals submitted by the Greek government were satisfactory to start work on concluding the review of the bailout program. Earlier in the day, Eurogroup President Jeroen Dijsselbloem confirmed that Greece presented its reform proposals and that they were being assessed to grant a four month extension.
RWE and E.ON advanced. Deutsche Bank and Commerzbank were up on the day. Telefonica Deutschland gained after it reported financial results. Technip and Total were higher on the day as were Veolia Environnement and GDF Suez. BHP Billiton climbed after the miner’s first half profit topped expectations. Vodafone dropped on a broker downgrade. Meggitt declined after its full year revenues and profits fell from a year ago. Mondi gained after it reported increased annual profit and increased its dividend.
Bank of England Governor Mark Carney reiterated that inflation will return to the 2% target in a two year horizon. At the Treasury Select Committee on Tuesday, Carney said inflation may fall below zero in coming months. Eurozone harmonized consumer prices declined 0.6% on the year — the most since July 2009. German gross domestic product was up 0.7% in the fourth quarter and was up 1.4% from the same quarter a year ago. Growth was driven by foreign demand and household spending.
Asia Pacific
Most stock indices advanced Tuesday. However, gains were capped ahead of Federal Chair Janet Yellen’s testimony that would take place later in the global market day. The Nikkei surged to another 15-year high while the mainland Chinese market remained closed for the Lunar New Year holidays. Investors waited for progress on Greece’s bailout program after the country failed to come up with a list of proposed changes to the nation’s austerity program by Monday’s deadline.
The Nikkei was up 0.7% as the yen weakened and investors waited for Ms Yellen’s testimony. Mitsui Chemicals, NTN and Yahoo Japan advanced. Asahi Glass climbed on a brokerage upgrade. Casio Computer jumped on a Nikkei report that it plans to expand production of high-end luxury wristwatches in Japan that sell at prices upwards of ¥100,000. Skymark Airlines gained after ANA Holdings said it was considering injecting capital into the struggling carrier as part of a rehabilitation plan. Dentsu advanced after the advertising group reported that Japan’s advertising expenditures in 2014 totaled ¥6.15 trillion, an increase of 2.9% over the previous year.
Both the S&P/ASX and All Ordinaries added 0.3% thanks to a string of positive earnings reports. BHP Billiton rallied after it announced big cuts in capital spending to counter weaker prices and reiterated a plan to demerge non-core assets after reporting a profit for the first half that nearly halved from last year. Fortescue Metals gained while Rio Tinto retreated. Banks were mixed. The Kospi added 0.4% although gains were capped because of a sharp decline in global oil prices overnight. The Sensex edged up 0.1%. The Hang Seng was down 0.3%.
Global Stock Market Recap
Please remember, the value of investments and the income from them can do down as well as up. Funds that invest in overseas markets may be subject to currency fluctuations. Investments in small and emerging markets can be more volatile than other overseas markets. Reference in this document to specific securities should not be construed as a recommendation to buy or sell these securities, but is included for the purposes of illustration only.
Looking forward*
China posts its flash manufacturing PMI for February. In the US, January home sales will be reported. Fed Chair Janet Yellen gives her semi-annual monetary policy testimony to the House Financial Services Committee.
*Note — all releases are listed in local time.
Anne D PickerChief EconomistEconoday