Mar­kets rally as Fed reins in rate-hike spec­u­la­tion

Irish Independent - Business Week - - BUSINESSWEEK -

GLOBAL eq­uity mar­kets ral­lied, with the Dow hit­ting a new high, the dol­lar gained and bond yields tum­bled yes­ter­day af­ter Fed­eral Re­serve chair­woman Janet Yellen damp­ened grow­ing ex­pec­ta­tions of more than one in­ter­est-rate hike later this year.

In re­marks to the House Com­mit­tee on Fi­nan­cial Ser­vices, Ms Yellen said the US econ­omy was strong enough to ab­sorb fur­ther grad­ual rate in­creases and the slow wind- down of the Fed’s mas­sive bond port­fo­lio.

The tes­ti­mony de­picted an econ­omy that is grow­ing, al­beit slowly, and con­tin­ues to add jobs as it ben­e­fits from steady house­hold con­sump­tion and a re­cent jump in busi­ness in­vest­ment.

Given cur­rent es­ti­mates, the fed­eral funds rate “would not have to rise all that much fur­ther” to reach a neu­tral level that nei­ther en­cour­ages nor dis­cour­ages eco­nomic ac­tiv­ity, Ms Yellen said in her pre­pared tes­ti­mony.

Eq­ui­ties mar­kets rose on the view the Fed’s mon­e­tary pol­icy was not go­ing to be as ag­gres­sive as some had an­tic­i­pated, said Larry Hathe­way, chief econ­o­mist at as­set management firm GAM.

“The Fed isn’t re­ally go­ing to up­set the ap­ple cart,” Mr Hathe­way said.

“There’s some soft­en­ing here of what the Fed is go­ing to do, at least around rates. It doesn’t nec­es­sar­ily an­swer the ques­tion around its bal­ance sheet.”

MSCI’s gauge of stocks across the globe gained 0.90pc, while the panEuro­pean FTSEurofirst 300 in­dex of lead­ing re­gional shares rose 1.64pc and emerg­ing mar­ket stocks rose 1.10pc.

On Wall Street, the Dow Jones In­dus­trial Av­er­age rose 130.65 points, or 0.61pc, to 21,539.72, above a high set on July 3.

The S&P 500 gained 16.44 points, or 0.68pc, to 2,441.97 and the Nas­daq Com­pos­ite added some 57.55 points, or 0.93pc, to 6,250.86.

Bond yields, which move in re­verse of price, fell sharply.

The bench­mark 10-year Trea­sury yield fell to 2.302pc, its low­est in two weeks, be­fore par­ing some gains to trade at 2.3141.

At the front end of the curve, the two-year yield dropped as low as 1.331pc, from 1.379pc on Tuesday, and last traded at 1.3470pc.

Ger­many’s 10-year gov­ern­ment bond yield fell to 0.515pc.

The dol­lar, which fell against the euro soon af­ter the re­lease of Ms Yellen’s pre­pared re­marks, re­versed course and was trad­ing near ses­sion highs against the com­mon cur­rency, as gov­ern­ment bond yields in the euro area fell.

(Reuters)

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