Euro­pean shares hit one-month high, dol­lar firms on Yellen's hike hint

The Pak Banker - - MARKETS/SPORTS -

Euro­pean shares hit one-month highs on Mon­day, while the dol­lar in­dex rose to a twom­onth peak af­ter Fed­eral Re­serve Chair Janet Yellen sug­gested that an in­ter­est rate hike in the United States may be around the cor­ner.

The Fed should raise rates "in the com­ing months" if growth picks up and the la­bor mar­ket con­tin­ues to im­prove, Yellen said on Fri­day. St. Louis Fed Pres­i­dent James Bullard chimed in, say­ing on Mon­day, global mar­kets ap­pear to be "well-pre­pared" for a sum­mer rate hike, although he did not spec­ify a date for the pol­icy move.

The prob­a­bil­ity of a rate in­crease at the Fed­eral Open Mar­ket Com­mit­tee's June 1415 meet­ing rose to around 34 per­cent from 26 per­cent on Thurs­day, ac­cord­ing to CME's Fed­watch pro­gram. Bets on an in­crease at the July 26-27 pol­icy meet­ing edged up to 60 per­cent, more than dou­ble the level of a month ago.

Against a bas­ket of cur­ren­cies, the dol­lar was up 0.4 per­cent at 95.879 .DXY, while the euro strug­gled near 2-1/2 month lows of $1.1097 hit in the Asian ses­sion EUR=. The euro zone's blue-chip Euro STOXX 50 in­dex .STOXX50E was 0.1 per­cent higher, while Ger­many's DAX .GDAXI was up 0.3 per­cent, hit­ting a one-month high. Trad­ing vol­umes are ex­pected to be thin as the Lon­don and New York mar­kets are closed for a pub­lic hol­i­day.

While higher U.S. in­ter­est rates would sap global liq­uid­ity, Wall Street and Euro­pean in­vestors took Yellen's comments in their stride, as they sug­gested the world's largest econ­omy was strong enough to weather an­other rate hike, fol­low­ing from the De­cem­ber hike.

"The re­turn to U.S. rate hike ex­pec­ta­tions have re­opened the pos­si­bil­ity of short­term out­per­for­mance for Euro­pean stocks," said Di­dier Duret, global chief in­vest­ment of­fi­cer at ABN-AMRO Pri­vate Bank­ing, adding in­vestors were keeping an eye on the dol­lar for it to break re­cent ranges.

The rise in Euro­pean mar­kets came af­ter Ja­pan's Nikkei stock in­dex .N225 ended up 1.4 per­cent, as the yen JPY= weak­ened to a one-month low and ex­pec­ta­tions rose that the gov­ern­ment would de­lay a sales tax hike sched­uled for April next year. Ja­panese Prime Min­is­ter Shinzo Abe said he would de­lay the in­crease by 2-1/2 years, Masahiko Ko­mura, vice pres­i­dent of the rul­ing Lib­eral Demo­cratic Party, told re­porters on Mon­day, echo­ing what a gov­ern­ment source told Reuters on Sun­day. One un­cer­tainty, how­ever, is how mar­kets would re­act if a post­pone­ment of Ja­pan's sales tax hike were to lead to a down­grade of the coun­try's sov­er­eign rat­ing. "What would be scary is if there were to be a down­grade. I think eq­ui­ties would fall if that hap­pens. That re­mains a risk," said Satoshi Ok­a­gawa, se­nior global mar­kets an­a­lyst for Su­mit­omo Mit­sui Bank­ing Cor­po­ra­tion in Sin­ga­pore.

This week in­vestors will keep an eye on the all-im­por­tant U.S. non-farm pay­rolls and the In­sti­tute for Sup­ply Man­age­ment sur­veys. The May jobs re­port is due on Fri­day and a solid read­ing could heighten ex­pec­ta­tions for a June move. Economists ex­pect U.S. em­ploy­ers to have added 170,000 jobs this month, slightly more than they did in April. Hourly wages are ex­pected to show a 0.2 per­cent in­crease from the pre­vi­ous month. ECONUS Crude oil fu­tures re­mained shy of the $50 per bar­rel level af­ter mark­ing weekly gains, feel­ing some pres­sure from the stronger U.S. dol­lar that made it more ex­pen­sive for hold­ers of other cur­ren­cies.

Brent crude LCOc1 slipped to $49.10 a bar­rel, af­ter gain­ing 1 per­cent last week. U.S. crude CLc1 was down 0.3 per­cent at $49.18 af­ter rising about 3 per­cent for the week.

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