While you were sleeping: Gradualism embraced

Friday 20th November 2015

The US dollar slid, while Wall Street and US Treasuries gained, amid expectations that Federal Reserve interest rate increases will be gradual.

Minutes from the Fed’s October meeting, released Wednesday, reassured investors.

“The market has grown comfortable with the idea of a dovish hike,” Mark Dowding, a London based money manager at BlueBay Asset Management, told Bloomberg. “The market has sent out the message that they are comfortable with the idea of a gradual approach to policy tightening, and the Fed is endorsing that view and communicating to the market they are going to give it what it wants.”

In New York trading at about 1.08pm, the Dow Jones industrial average rose 0.1 percent. At about 12.52pm trading, the Standard & Poor’s 500 Index eked out a 0.01 percent gain while the Nasdaq Composite Index added 0.2 percent.

US Treasuries rose, pushing yields on the benchmark 10-year note four basis points lower to 2.23 percent.

The latest economic reports underpinned bets for a December rate hike.

A Labor Department report showed initial claims for state unemployment benefits fell 5,000 to a seasonally adjusted 271,000 for the week ended November 14.

"We view US labour market strength as very much intact and expect another month of solid job gains to pave the way for the Fed to raise rates in December," Jesse Hurwitz, an economist at Barclays in New York, told Reuters.

Separate reports showed that the Conference Board’s index of US leading economic indicators rose 0.6 percent in October, following 0.1 percent declines in each of the prior two months, while the Philadelphia Fed’s business outlook index rose to 1.9 in November, from minus 4.5 in October.

In the Dow, gains in shares of Intel and those of Coca-Cola, last trading 3.6 percent and 2.2 percent higher respectively, outweighed slides in shares of UnitedHealth and those of Pfizer, down 5.8 percent and 3.4 percent respectively.

Shares of UnitedHealth slumped after the country’s largest health insurer downgraded its 2015 earnings outlook and said it may exit Obamacare.

UnitedHealthcare has pulled back on its marketing efforts for individual exchange products in 2016, the company said in a statement, adding it will determine during the first half of 2016 to what extent it can continue to serve the public exchange markets in 2017.

"We cannot sustain these losses," Hemsley said during a conference call with investors. "We can't really subsidise a marketplace that doesn't appear at the moment to be sustaining itself.”

That raised concern other insurers might be suffering losses from the program too.

“If one of the largest and presumably, by reputation and experience, the most sophisticated of the health plans out there can’t make money on the exchanges, then one has to question whether the exchange as an institution is a viable enterprise,” Sheryl Skolnick, an analyst at Mizuho Securities, told Bloomberg.

Meanwhile, while the US dollar weakened on Thursday, Goldman Sachs is bullish on the greenback for 2016.

“The divergence between the Fed and both the [European Central Bank] and [Bank of Japan] will continue to be one of the more durable themes of 2016,” Goldman strategists, led by Francesco Garzarelli, co-head of macro and markets research in London, wrote in a report, according to Bloomberg. “Currencies are particularly sensitive to this divergence pressure and, despite the strength we have seen so far, we believe the dollar has more room to appreciate versus the euro and yen.”

In Europe, the Stoxx 600 Index closed the session with a 0.4 percent increase from the previous close. France’s CAC 40 Index rose 0.2 percent, the UK’s FTSE 100 Index gained 0.8 percent, while Germany’s DAX Index climbed 1.1 percent.

BusinessDesk.co.nz

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