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World Stocks Drift as Investors Factor in Fed Rate Hike

Benchmark U.S. crude gained 26 cents to $50.89 a barrel in electronic trading on the New York Mercantile Exchange
By The News · 21 of October 2016 08:59:57
A woman walks by an electronic stock board of a securities firm in Tokyo, A woman walks by an electronic stock board of a securities firm in Tokyo, Friday, Oct. 21, 2016. (AP Photo/Koji Sasahara), photo: AP/Koji Sasahara

World stock markets drifted Friday as investors increasingly factored in a U.S. interest rate increase soon, based on the brightening corporate and economic outlook.

KEEPING SCORE: France’s CAC 40 edged down 0.2 percent to 4,531 and Germany’s DAX was flat at 10,699. Britain’s FTSE 100 ticked 0.3 percent higher to 7,048. U.S. stocks were poised to open lower, with Dow and S&P 500 futures both slipping 0.4 percent.

FED OUTLOOK: Investors are seeing a higher chance of the Federal Reserve raising interest rates this year from the ultralow levels that have fueled a multiyear stock boom, given the latest corporate and economic data. Most U.S. companies have posted quarterly earnings that have beaten analysts’ expectations. Meanwhile, weekly applications for jobless benefits remained near a 43-year low while home sales rose at their strongest pace since June, reports said Thursday.

ANALYST INSIGHT: “While expectations for a December Fed rate hike are continuing to build, investment markets seem to be taking it a bit better than was the case in the run up to last December’s eventual rate hike,” Shane Oliver, head of investment strategy at AMP Capital, said in a report. He cited three differences from a year ago: a more positive global and U.S. growth outlook; U.S. earnings bottoming out rather than getting worse; and lower uncertainty over capital outflows from China and its yuan currency.

TOBACCO DEAL: Shares in Reynolds American Inc. jumped 20 percent in premarket trading after London-based British American Tobacco offered to buy out the 57.8 percent it doesn’t already own for the equivalent of $56.50 per share, 20 percent more than Thursday’s closing price. Reynolds is evaluating the offer, which analysts say would help both sides overcome a decline in smoking rates in their home markets and competition from electronic cigarettes.

ASIA’S DAY: Japan’s benchmark Nikkei 225 index lost 0.3 percent to end at 17,184.59 and South Korea’s Kospi lost 0.4 percent to 2,033.00. The Shanghai Composite Index in mainland China edged up 0.2 percent to 3,090.94 while Australia’s S&P/ASX 200 lost 0.2 percent to 5,430.30. Benchmarks in Southeast Asia were mixed. Hong Kong’s stock market was closed due to a typhoon.

CURRENCIES: The dollar slipped to 103.75 yen from 104.08 on Thursday. The euro weakened to $1.0894 from $1.0927. The official exchange rate for the Chinese currency yuan fell to a six-year low against the dollar of 6.7558 yuan, as investors bet that an eventual interest rate hike in the U.S. will boost the dollar.

ENERGY: Oil prices stabilized. Benchmark U.S. crude gained 26 cents to $50.89 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell $1.17 on Thursday. Brent crude, used to price international oils, gained 38 cents to $51.76 a barrel in London.