On 29 August, 2016 – Global investors reacted to Fed Chair Janet Yellen’s comments
Stocks in Asia and Europe were mostly lower. However, US markets rallied.
United States
US stock markets rallied to near an all-time high Monday after a positive consumer spending report for July. Banks and other financial companies led the way. The Dow Jones industrials were up 0.6 percent, the S&P added 0.5 percent and the Nasdaq advanced 0.3 percent.
Banks gained more than the rest of the market as traders anticipated that interest rates could move higher in the coming months. Banks have been hurt by historically low interest rates, which makes lending less profitable. JPMorgan, Wells Fargo and Bank of America stock gained. Goldman Sachs also advanced.
Herbalife jumped after the company’s largest shareholder, Carl Icahn, said late Friday he had bought an additional 2.3 million shares in the company and denied that he ever gave an order to sell his $1 billion stake. Micron Tech advanced on broker upgrades. Allegheny Technologies also advanced on a broker upgrade.
July personal income was up 0.4 percent while consumer spending was up 0.3 percent. Spending was bolstered by the strong income gains.
These data reflect observations at 4:00 PM US ET. Gold market closed for British bank holiday. Copper futures were down 0.1 percent to US$2.08. WTI spot crude was down 65 US cents to US$46.99. Dated Brent spot crude was down 64 US cents to US$49.28. The US dollar was up against the yen, euro, pound, Swiss franc and the Canadian dollar. However, it declined against the Australian dollar. The Dollar Index was up 0.1 percent. The yields on both the US Treasury 30 year bond and 10 year note were down 7 basis points to 2.22 percent and 1.56 percent respectively.
Europe
Most European markets were lower Monday. Investors were cautious after hawkish comments from Fed Chair Janet Yellen and Vice Chair Stanley Fischer raised concerns over a potential fed funds rate increase in coming months. Both the CAC and DAX lost 0.4 percent while the SMI added 0.2 percent. The FTSE was closed for a holiday.
Investors were reluctant to make any major moves before Friday’s US employment report and there were very little economic data at the start of the week to drive trading. A rising US dollar pressured commodity prices, while crude oil prices dipped due to signs of rising output from Iraq.
Deutsche Bank declined after it entered into an agreement to sell its subsidiary in Argentina to Banco Comafi as part of its strategy plan to rationalize its global footprint. Generic drug maker Stada slid after its shareholders voted Chairman Martin Abend off the supervisory board. Alstom jumped after the engineering giant signed a $2 billion contract with Amtrak to design and build 28 new high-speed trains which will run on the Northeast Corridor between Boston and Washington DC. Roche Holdings was higher after the drug maker received emergency use authorization for its Zika virus test by the US Food and Drug Administration.
Asia Pacific
Most Asian stocks declined Monday after Federal Reserve Chair Janet Yellen hinted in Friday’s speech at the Jackson Hole conference that an increase in interest rates could be in the cards soon in the midst of an improving US economy. Many market participants are now looking ahead to Friday’s jobs report for clues on the pace and timing of future rate increases.
The Nikkei added 2.3 percent as Ms Yellen’s upbeat assessment of the US economy and comments from BoJ Governor Haruhiko Kuroda that the Bank will not hesitate to expand stimulus if needed pushed the dollar-yen pair higher. Exporters Canon, Honda Motor, Toyota and Mazda Motor climbed as the US dollar hit a three week high against the yen.
Both the S&P/ASX and All Ordinaries retreated 0.8 percent. A possible US interest rate increase and declining commodity prices weighed on investors. Disappointing new home sales data also dented investor sentiment. The big four banks retreated. Miners were narrowly mixed. Gold miners Newcrest Mining, Norther Star Resources and Evolution Mining slumped as gold prices dipped on a firmer dollar. Oil Search, Origin Energy and Woodside Petroleum dropped after oil prices fell in Asian deals on reports that Iran will continue to ramp up output.
The Shanghai Composite was virtually unchanged (down 0.28 point) while the Hang Seng lost 0.4 percent. The Kospi was down 0.3 percent as the US dollar got a boost from hawkish comments from Ms Yellen and Federal Reserve Vice Chair Stanley Fischer. The Sensex was up 0.4 percent.
Looking forward
Japan releases July household spending, unemployment and retail sales data. The Eurozone posts final EC business and consumer sentiment. In the US, August consumer confidence will be released.
Global Stock Markets
*Note — all releases are listed in local time.
Source: Fidelity
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