While you were sleeping: Wall Street hits records

Wednesday 25th February 2015

US equities and Treasuries gained after Federal Reserve Chair Janet Yellen signalled to a congressional committee that the improving economy is unlikely to warrant a rate increase for “at least the next couple of meetings”.

“The FOMC's assessment that it can be patient in beginning to normalise policy means that the Committee considers it unlikely that economic conditions will warrant an increase in the target range for the federal funds rate for at least the next couple of FOMC meetings,” Yellen told the Senate banking committee.

“If economic conditions continue to improve, as the Committee anticipates, the Committee will at some point begin considering an increase in the target range for the federal funds rate on a meeting by meeting basis,” according to Yellen.

“Before then, the Committee will change its forward guidance. However, it is important to emphasise that a modification of the forward guidance should not be read as indicating that the Committee will necessarily increase the target range in a couple of meetings.”

Yellen will address the House of Representatives Wednesday.

US Treasuries rose, pushing yields on the benchmark 10 year bond seven basis points lower to 1.99 percent.

Yellen suggested Fed policymakers “need to see continued strength in the data and reasonable confidence that they will be able to move back to their 2 percent objective over the medium term,” Eric Green, head of US rates and economic research at TD Securities USA, told Bloomberg. “That is being looked at by the bond market that that may put a September hike out of the question.”

In afternoon trading on Wall Street, the Dow Jones Industrial Average rose 0.40 percent, while the Standard & Poor’s 500 Index moved 0.09 percent higher. The Nasdaq Composite Index slipped 0.07 percent.

Earlier in the session the Dow climbed to a record 18,212.08, while the S&P 500 hit a record 2,116.50.

“We have some more time where rates are not going to change dramatically over the near term,” Bill Schultz, chief investment officer at McQueen, Ball & Associates in Bethlehem, Pennsylvania, told Bloomberg. “The market’s interpreting it as a continuation of policy until proven otherwise, going to need to see continued evidence, job growth, inflation or economic growth picking up before they’re going to change their forward guidance.”

The latest data were solid indeed. The S&P/Case Shiller composite index of 20 metropolitan areas climbed 4.5 percent in December from the prior year.

Separately, Markit’s preliminary reading of its purchasing managers index for the service sector increased to 57.0 in February, up from 54.2 in January.

To be sure, the Conference Board’s consumer confidence index fell to 96.4, the lowest since September, from an upwardly revised 103.8 in January.

Gains in shares of Home Depot and those of JPMorgan Chase, last up 3.3 percent and 2.4 percent respectively, propelled the Dow higher.

Home Depot shares climbed after the company reported better-than-expected quarterly earnings and offered a more upbeat full year outlook than anticipated. It also announced an US$18 billion share buyback and boosted its dividend.

In Europe, the Stoxx 600 Index finished the session day with a 0.6 percent increase from the previous close, after euro-zone finance ministers agreed to extend Greece’s bailout program. France’s CAC 40 Index rose 0.5 percent, while Germany’s DAX gained 0.7 percent. The FTSE 100 Index added 0.5 percent to close at a record high.

Greece’s ASE Index jumped 9.8 percent. The market had been closed on Monday for a holiday.

BusinessDesk.co.nz

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