Wall Street spent the week biding its time before Federal Reserve Chair Janet Yellen made a speech on Friday. The S&P 500 was down 6.5 points, or 0.3%, at 2,165.97 and the Nasdaq Composite was down 11.80 points, or 0.23%, at 5,200.41. “It doesn’t mean I favor high rates”. The leaders on the Dublin market included packaging giant Smurfit Kappa, which increased 3.6pc to €22.75, while drinks group C&C rose 2.5pc to €3.84.
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Her comments sent the Dow Jones up 103.17 points to 18,551.58.
The dollar rallied to a two-week high against the yen and Swiss Franc on Friday in volatile trading as investors focused on Federal Reserve Chair Janet Yellen’s comments on an improving USA economy that bolstered the case for an interest rate increase.
Without any specific timetable for rate hikes many remain sceptical about the certainty of hikes. The equity markets initially regained ground but then sold off throughout the morning as comments from other top Fed officials reinforced Yellen’s stance. Yields on government bonds fell.
With no strong inflationary tendencies, the Fed can continue at a gradual pace and guide market expectations accordingly, said economists at the Institute of International Finance (IIF) Friday in a report, expecting one rate hike in December and two more in 2017. Since investors earn very little interest on safe investments like US treasury bonds, the Fed’s policy may have caused investors to take more aggressive risks.
“Anything that’s not going to be straight-out dovish is going to be disappointing”, she said.
Crude oil prices increased as Yellen’s speech began. “She suggests the economy is improving, but the GDP numbers for the past three quarters are closer to 1 percent than three percent”. “That is very anemic”.
Figures published yesterday showed the U.S. economy grew at an annual rate of 1.1 per cent in the second quarter of the year.
Since exiting the recession in the summer of 2009, the US economy has been growing sluggishly, making it the slowest recovery since World War II. A handful of stocks rose after reporting results that were better than analysts had expected.
Such a view is “exaggerated”, Yellen said, because the Fed will be able to use bond purchases and forward guidance to ease conditions. Traders are now pricing in a 60.2 percent likelihood of a hike in December, up from 51.8 percent Thursday. That would be the fourth quarter in a row of drops.
A near 0.8 percent rise in technology and healthcare stocks led the gains on the S&P.
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Bloomberg’s Dollar Spot Index, which tracks the currency against 10 peers, dropped 0.5 percent as of 10:29 a.m.in NY. U.S. stocks briefly pared gains, while prices of longer-dated U.S. Treasuries were trading higher. The price of West Texas Intermediate oil, the US benchmark, was up 20 cents to $47.53, while the price of Brent crude, the global benchmark, increased 5 cents to $49.72.
