Wall St rebounds after falling on rate fears

LONDON: Wall Street stocks pushed higher yesterday, a day after an upbeat assessment of the US economy by Federal Reserve boss Jerome Powell fanned fears of a sharp rise in interest rates sent equities tumbling.

The Dow Jones Industrial Average added 0.4 percent in the first minute of trading, with the broader S&P 500 and tech-heavy Nasdaq Composite also moving higher. “US stocks are rebounding slightly in early action from yesterday’s drop that came courtesy of an apparent hawkish reaction to Fed Chairman Jerome Powell’s first Congressional monetary policy testimony,” said analysts at Charles Schwab brokerage.

Powell, making on Tuesday his debut before Washington lawmakers, said the outlook for the US economy had improved since December when President Donald Trump pushed through massive across-the-board tax cuts. “Powell’s unequivocal optimism over the outlook for the US economy and his hawkishness have led investors to believe that the Fed could take a more aggressive approach to monetary policy,” said City Index analyst Fiona Cincotta.

While it was a positive sign for the world’s top economy, the appraisal spooked investors already on edge at the prospect of higher borrowing costs. They forecast four rate rises this year rather than the three previously expected. World markets suffered a sharp drop at the start of February after strong jobs and wages data sparked concerns that inflation would surge, and in turn force the Fed to ramp up borrowing costs. The Dow and Nasdaq both fell 1.2 percent Tuesday while the S&P 500 dropped 1.3 percent.

UK pound weighed down Asian equity markets took their lead from Wall Street, with sentiment also hit from news of the third successive monthly fall in China’s purchasing managers’ index (PMI) survey of factory activity to a 19-month low in February. That news weighed heavily on London’s energy and mining sectors because the Asian powerhouse economy is a top consumer of many raw materials. But European indices pushed higher as trading in the United States approached, with London and Paris both moving into positive territory. London’s FTSE 100 index was nearly 0.2 percent higher despite shares in British broadcaster ITV slumping over seven percent, topping the London FTSE 100 fallers’ board. The company posted declining advertising revenues, in the first results under new chief executive Carolyn McCall, the former boss of low-cost airline EasyJet.

Sentiment was jolted also by news that around 6,000 jobs could be lost following the collapse both of the UK arm of Toys’R’Us and British electrical retailer Maplin. The European single currency drifted lower following news that eurozone inflation slowed to 1.2 percent in February. That could make it less likely that the European Central Bank will turn off its massive stimulus program in the near future.

Meanwhile the pound fell after the EU released its draft proposal for Brexit, which Prime Minister Theresa May angrily rejected and said “no UK prime minister could ever agree to it.” The EU draft proposes keeping British-ruled Northern Ireland in a customs union if there is no better solution to avoid a hard border with EU-member Ireland. “The EU released its draft Brexit treaty this morning and despite containing no language that hadn’t already been anticipated, it did weigh on the pound in the immediate aftermath,” said Craig Erlam, senior market analyst at online currency trading platform OANDA.