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Category: Stockmarket / Currency / Futures / Markets / Money and Monetary Policy

Wall St rebounds with Fed rate hike seen as economic vote of confidence

Friday, 16 Dec 2016 05:42:31 | Rebecca Hyam

Wall Street's Dow Jones Industrial Average still has not cracked the 20,000-point barrier. (f-l-e-x: www.flickr.com)

Wall Street bounced back thanks to improved investor sentiment, a day after the US Federal Reserve raised interest rates and flagged three further rate increase next year.

Markets at 8:30am (AEDT):

  • ASX SPI 200 futures +0.3pc to 5,500
  • AUD: 73.56 US cents, 59.2 British pence, 86.93 Japanese yen, 70.63 euro cents, $NZ1.0447
  • US: S&P 500 +0.4pc to 2,262, Dow Jones +0.3pc to 19,852, Nasdaq +0.38pc to 5,457
  • Europe: Euro Stoxx +1.07pc to 346.50, FTSE +0.72pc to 6,999, DAX +1.08pc to 11,366
  • Commodities: Gold -1.42pc to $US1,127.86/ounce, Brent crude oil +0.37pc to $US54.10/barrel

Analysts said investors were now viewing the Fed's outlook on rates as a sign of confidence in the economy, ahead of President-elect Donald Trump's promised tax cuts and infrastructure spending bonanza.

There has been a steady rally among US stocks since the presidential election on November 8, because of the prospect of Donald Trump's business-friendly proposals stimulating the economy.

Although ANZ's analysts sounded a word of caution based on history.

"The initial reaction to the December 2015 hike was positive – and look what unfolded in late December and January," they warned in a note.

Banking stocks were among the session's stand-out performers, while Yahoo's shares slumped, after the tech giant revealed a second massive data breach.

That admission prompted concerns that Verizon may scrap a deal to buy Yahoo's core internet business.

In economic news, US consumer prices moderated in November, but the underlying trend continued to indicating rising inflationary pressures.

The Consumer Price Index (CPI) edged up to 1.7 per cent annually, from 1.6 per cent last month, which was in line with expectations.

National Australia Bank economist Tapas Strickland wrote in a note that a raft of economic figures released overnight painted an encouraging picture of the US economy.

"Regional manufacturing indices were very positive, with the Philadelphia Fed at 21.5 from 7.6 - a considerable lift and also evidence of momentum building in manufacturing," he wrote.

"Homebuilder sentiment also was very strong, recording its best reading since July 2005.

"Low levels of US jobless claims reinforced the view of the US being close to full employment, while on target US CPI will mean inflation will likely pick up to the Fed's target."

European markets also recovered from yesterday's losses, fuelled by a rally among global banking stocks.

Both the Bank of England and Norway's central bank held interest rates steady, as was widely expected.

The BoE noted that the recent rally in the pound (up 6 per cent since the start of November) would "point to less of an overshoot in inflation relative to the target in the medium term".

Norway's central bank suggested there was a slightly higher probability of a rate cut than an increase in the year ahead.

Locally, shares are poised for modest rise at the open and, at 8:15am (AEDT), the ASX SPI 200 was up 0.2 per cent to 5,495.

At the same time the Australian dollar was worth 73.56 US cents, having come under further pressure overnight on a stronger greenback.

"Given broad US dollar strength (the US dollar was up 1.0 per cent overnight), all G10 currency pairs were lower overnight. The Aussie outperformed, down only 0.6 per cent," observed NAB's Tapas Strickland.

West Texas crude oil was slightly lower at $US50.85 a barrel, a barrel of Tapis was worth $US54.18 and spot gold had eased to $US1,127.86 an ounce.

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