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While you were sleeping: Wall St, Treasuries advance

Friday 23rd February 2018

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Wall Street rose as did US Treasuries, while the greenback fell, as investors reassessed their expectations for Federal Reserve interest rate increases this year, betting the central bank remains on track for three hikes instead of a steeper path. 

Concern that Wednesday's release of minutes from the Fed’s January meeting flagged a steeper path of interest rate increases abated. 

“Yesterday was overdone. Clearly we have a major market reversal and today investors are more comfortable with the likelihood of three rate hikes and not four,” John Lynch, chief investment strategist at LPL Financial in Charlotte, North Carolina, told Reuters. 

“In spite of what we experienced with a return to volatility a couple of weeks ago, we can still see firming economic and profit growth and that is something investors will need to maintain their focus on,” Lynch said.

In 1.22pm trading in New York, the Dow Jones Industrial Average advanced 0.7 percent, while the Nasdaq Composite Index rose 0.1 percent. In 1.07pm trading, the Standard & Poor’s 500 Index gained 0.6 percent. 

“As QE is pulled out, and rates normalise and growth is higher, rates have to go up," Ernesto Ramos, head of equities for BMO Asset Management, told Bloomberg. 

"Is that bad for stocks? Not up until you hit a certain point,” according to Ramos. “And the reason is, it’s a reflection of higher growth, higher inflation expectations, and those are good things for stocks up to a certain point. But if inflation goes too high or rates go too high, that’s a problem."

US Treasuries rose, pushing the yield on the 10-year note three basis points lower to 2.92 percent.

“The elephant in the room is what such normalisation implies for global asset valuation, and whether we now have a so-called ‘everything bubble’ which is at risk of being deflated by the exit process of” the Fed, European Central Bank, Bank of Japan and others,” Martin Enlund, an analyst at Nordea Bank, wrote in a recent note, Bloomberg reported.

The Dow moved higher, led by gains in shares of United Technologies and those of General Electric, recently up 3.6 percent and 3.2 percent respectively. Shares of Cisco and those of Nike fell, down 0.4 percent and 0.1 percent respectively, for the only two stocks in the Dow to post declines. 

In the latest US jobs data, a Labour Department report showed initial claims for state unemployment benefits unexpectedly declined, falling 7,000 to a seasonally adjusted 222,000 for the week ended February 17.

“Firms are extraordinarily unwilling to part company with workers reflecting, in all likelihood, the difficulty of replacing them,” John Ryding, chief economist at RDQ Economics in New York, told Reuters.

In Europe, the Stoxx 600 Index ended the day with a 0.2 percent increase from the previous close. France’s CAC40 Index rose 0.1 percent.

Meanwhile, the UK’s FTSE 100 index fell 0.4 percent, and Germany’s DAX Index slipped 0.1 percent.


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