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As Fed Rate Hike Speculation Eases, Global Stocks Recover

A barrel of benchmark crude was down $1.10, or 2.4 percent at $45.20 while Brent crude, the international standard, fell 93 cents, or 1.9 percent, to $47.42 a barrel
By The News · 13 of September 2016 07:49:43
A man walks to work on Wall Street, near the New York Stock Exchange, in New York, No available, photo: AP/Mark Lennihan, File

An easing in U.S. rate hike expectations following a speech by one of the Federal Reserve’s policymakers helped shore up stock markets around the world on Tuesday. Oil prices took a pounding after a leading industry group reduced its global oil demand forecasts.

KEEPING SCORE: In Europe, Germany’s DAX rose 0.5 percent to 10,480 while France’s CAC-40 rose 0.1 percent to 4,444. The FTSE 100 index of leading British shares was up 0.2 percent at 6,712. Expectations that Wall Street was poised to pare some of Monday’s gains weighed on European markets though. Dow futures and the broader S&P 500 futures are expected to open 0.6 percent lower.

U.S. RATE FOCUS: The main point of interest in markets at the moment centers on the Fed and when it will raise interest rates again. Comments last Friday from Fed rate-setter Eric Rosengren had stoked expectations of a rate hike as soon as next week, prompting big losses in global stock markets. On Monday, his peer Lael Brainard failed to echo the more hawkish tone, helping Wall Street to recover strongly. She argued that the “new normal counsels prudence in the removal of policy accommodation.” Low rates over many years have boosted stock prices as investors put their money in assets given the low returns available in bonds.

ANALYST’S COMMENT: “The continuous debate surrounding the prospect of a U.S. rate rise continues to dominate market sentiment as U.S. policymakers continue to gear up the markets for a further rate rise later this year,” said Michael Hewson, chief market analyst at CMC Markets. “Last night’s comments from Brainard acted as a neat counterweight to recent hawkish rhetoric.”

ASIA’S DAY: Earlier, Asian stocks mostly rallied. Japan’s Nikkei 225 gained 0.3 percent to 16,729.04 and South Korea’s Kospi rose 0.4 percent to 1,999.36 as Samsung Electronics, in the midst of a recall of its Galaxy Note 7 smartphones, gained 4.2 percent, recovering more than half of Monday’s loss. However, Hong Kong’s Hang Seng index lost 0.3 percent to 23,215.76, while Australia’s S&P/ASX 200 fell 0.2 percent to 5,207.80. The Shanghai Composite index inched back into positive territory, gaining 0.1 percent to 3,023.51.

OIL: Oil prices took a pounding Tuesday after a leading industry group said global oil demand growth is slowing by more than previously thought, largely because of a more pronounced economic slowdown during the third quarter of the year. In its September oil market report, the Paris-based International Energy Agency reduced its forecast for global demand growth to 1.3 million barrels a day in 2016 — 100,000 below the previous forecast. All in all, the alteration in the demand-supply balance anticipated by the IEA has weighed on oil prices. A barrel of benchmark crude was down $1.10, or 2.4 percent at $45.20 while Brent crude, the international standard, fell 93 cents, or 1.9 percent, to $47.42 a barrel.

CURRENCIES: The euro was flat at $1.1233 while the dollar rose 0.4 percent to 102.27 yen.