While you were sleeping: Hawks weigh on mood

Tuesday 23rd August 2016

The latest hawkish comments from a US Federal Reserve official weighed on equities and lifted the greenback as investors try to gauge the timing of a US interest rate increase.

On Sunday Fed Vice Chair Stanley Fischer said “we are close to our targets” on employment and inflation, adding to recent comments from his central bank colleagues that suggest the Fed might raise rates sooner than previously thought.

That further raised the already-high anticipation for a speech by Fed Chair Janet Yellen, this Friday, at the annual central bankers’ meeting in Jackson Hole, Wyoming. Her comments will be scrutinised for fresh clues.

“Stan Fischer’s comments clearly raised the risk of a more hawkish tone from Yellen on Friday,” Dennis Debusschere, a senior managing director and global portfolio strategist at Evercore ISI in New York, told Bloomberg. “So that’s impacting the dollar, risk assets and commodity prices.”

Wall Street was mixed. In 2.43pm trading in New York, the Dow Jones Industrial Average eased 0.09 percent. However, the Nasdaq Composite Index inched 0.03 percent higher. In 2.28pm trading, the Standard & Poor’s 500 Index slipped 0.15 percent.

In the Dow, declines in shares of Apple and those of Johnson & Johnson, last 1 percent and 0.7 percent weaker respectively, outweighed gains in shares of Visa and those of Boeing, up 0.5 percent and 0.4 respectively.

“We have been moving back and forth with this [Fed] rate increase for a while,” Philippe Gijsels, chief strategy officer at BNP Paribas Fortis in Brussels, told Bloomberg. “If you look at valuations, they’re not particularly cheap, so indeed markets have been very well supported. Therefore, they’re worried that interest rates will go up.”

Deal news offered a boost. Shares of Medivation jumped, up 19.7 percent as of 2.49pm in New York after Pfizer won a takeover battle for the maker of cancer drug Xtandi, with a deal worth about US$14 billion.

Shares of Pfizer traded 0.4 percent weaker as of 2.45pm in New York.

“The proposed acquisition of Medivation is expected to immediately accelerate revenue growth and drive overall earnings growth potential for Pfizer,” Ian Read, Pfizer’s chief executive officer, said in a statement. “The addition of Medivation will strengthen Pfizer’s Innovative Health business and accelerate its pathway to a leadership position in oncology, one of our key focus areas, which we believe will drive greater growth and scale of that business over the long-term.”

In Europe, the Stoxx 600 Index ended the session with a 0.1 percent slip from the previous close, as a drop in mining stocks weighed on the market. France’s CAC 40 index declined 0.2 percent, the UK’s FTSE 100 index fell 0.4 percent, while Germany’s DAX index retreated 0.5 percent.

Shares of Syngenta rallied, closing 10.6 percent higher, as state-owned China National Chemical won approval from the US national security regulator for its US$43 billion takeover of the Swiss chemical and seed company.

Kepler Cheuvreux analyst Christian Faitz said it was a “major milestone for the deal,” adding in a note to clients that “approval removes a major potential hurdle and should come as a relief to Syngenta shareholders,” Reuters reported. Kepler Cheuvreux rates Syngenta shares a "Buy".

BusinessDesk.co.nz

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