Global stocks pressured by banker talk
US stocks finished mostly higher Friday, bucking the trend in most global equity markets as worries about tightening monetary policy pressured sentiment. The Dow and S&P 500 ended modestly higher, but the Nasdaq faded into negative territory at the end of the session. London, Paris and Frankfurt all ended down, having abandoned early attempts at a modest rebound. Tokyo and Hong Kong also fell.
After an exhausting week dominated by intense speculation on the future of interest rates there was also much portfolio-shuffling at the end of the quarter. Some bargain-hunting propped up Wall Street stocks. “A buy-the-dip mentality has been an incessant mindset for years now, so it is fair to say that there will be an assumption that it will come into play again,” said Briefing.com analyst Patrick O’Hare in a note published before Friday’s session.
The euro declined Friday but held above $1.14, after talk of tighter ECB rates pushed the euro to more than one-year highs this week. “The jawboning by the heads of the European Central Bank, the Bank of England and the Bank of Canada this week suggested the period of divergent monetary policy between the Fed and other major central banks around the world, a pillar of the dollar’s broad rally since 2014, may be nearing its final chapter,” said Omer Esiner, an analyst at Commonwealth FX. “Such a scenario could remove a key source of support for the dollar going forward.”
Grappling with rallies
London, Paris and Frankfurt all ended down, having abandoned early attempts at a modest rebound. After an exhausting week dominated by intense speculation on the future of interest rates there was also much portfolio-shuffling at the end of the quarter. ECB chief Mario Draghi this week hinted at a possible end to easy monetary policy in the eurozone in remarks that boosted the euro, created rate hike expectations and plunged equity investors into uncertainty, undermining stock valuations. A strong currency hurts exporters, while higher interest rates raise corporate financing costs.
The pound rose on similar expectations for British monetary policy and bond yields rose across the continent. “European equities have turned lower in late-day action possibly due to some quarter-end posturing with the markets continuing to grapple with the recent rallies in the euro and British pound and bond yields in the region,” said analysts at the Charles Schwab brokerage. Sentiment in the British capital was also clouded as official data confirmed the economy slowed to 0.2-percent growth in the first quarter, as weak consumer spending started to bite.
Both Frankfurt and Paris had closed down almost two percent Thursday on concerns that central banks are preparing to scale back stimulus measures, such as record-low interest rates, in reaction to solid economic growth and high inflation. For years the greenback has benefited from a divergence between the Federal Reserve’s move to higher rates — including hikes this year — and other regions. Rising interest rates make currencies more attractive because they offer a higher rate of return.
Major US indices won solid gains over the first half of 2017 amid improving economic data, better earnings and optimism that President Donald Trump would win passage of tax cuts and other growth measures. However, analysts are more cautious about the second half of the year, pointing to the recent lurches in technology stocks as a potential harbinger of broader volatility. Other challenges include moves by the Federal Reserve and other global central banks to tighten monetary policy and the fading prospects of Trump’s growth agenda. Wells Fargo predicted that the S&P 500 would end the year between 2,230 and 2,330, down 100-200 points from current levels. Other dampening factors include lofty valuations and worries about inflation, Wells Fargo said in a note this week. —AFP
TOKYO: A cyclist waits for a green light in front of a stock quotation board flashing the Nikkei 225 key index of the Tokyo Stock Exchange in front of a securities company.