While you were sleeping: Euro gains amid hawkish comments

Tuesday 15th May 2018

Wall Street climbed amid optimism about trade talks between the US and China, while the euro rose amid signals the European Central Bank might lift interest rates sooner than anticipated.

US President Donald Trump eased concern about trade talks with China.

“President Xi of China, and I, are working together to give massive Chinese phone company, ZTE, a way to get back into business, fast,” Trump tweeted on Sunday. “Too many jobs in China lost. Commerce Department has been instructed to get it done!”

“China and the United States are working well together on trade, but past negotiations have been so one sided in favour of China, for so many years, that it is hard for them to make a deal that benefits both countries,” Trump tweeted. “But be cool, it will all work out!”

Wall Street gained. In 2.08pm trading in New York, the Dow Jones Industrial Average gained 0.2 percent, while the Nasdaq Composite Index rose 0.1 percent. In 1.52pm trading, the Standard & Poor’s 500 Index added 0.1 percent.

“At the moment, the market is breathing a sigh of relief that some of the fears over tariffs and inflation, in particular, have not been realised,” Mike Baele, managing director at US Bank Private Client Wealth Management in Portland, Oregon, told Reuters. “We are still not out of the woods, but it hasn’t escalated. The market is seeing it as a positive.”

US Treasuries fell, lifting yields on the two-year note to 2.54 percent. That’s the highest level in nearly a decade, according to Bloomberg. The US dollar slid, while the British pound and euro rose.

The euro climbed after comments by Bank of France Governor and European Central Bank policy maker Francois Villeroy de Galhau suggested an interest rate hike might come sooner than expected. An increase might happen “at least some quarters but not years” after the end of the ECB’s quantitative easing, according to Villeroy de Galhau.

The Dow rose as gains in shares of Walmart and those of UnitedHealth Group, each recently up 1.4 percent, outweighed declines in shares of Johnson & Johnson and those of Travelers, both recently down 0.6 percent.

Walmart is among several major US retailers to announce its latest earnings this week. Macy’s, Nordstrom, JC Penney and Home Depot are also set to report.

Even as the latest round of US corporate earnings has exceeded expectations, some caution against too much optimism.

"While tax reform has inflated the profits of companies in the S&P 500, it is not the only reason why their earnings have risen sharply. Booming sales have helped as well," John Higgins, chief markets economist at Capital Economics, said in a note on Monday. "Nonetheless, we think that analysts are too upbeat about the outlook."

Europe’s Stoxx 600 Index slid 0.3 percent. France’s CAC 40 Index inched 0.02 percent lower, the UK’s FTSE 100 Index fell 0.2 percent, while Germany’s DAX index also declined 0.2 percent.

(BusinessDesk)

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