While you were sleeping: Central banks hug limelight

Tuesday 1st December 2015

Wall Street slid, while eurozone equities rose, as investors eyed speeches by Federal Reserve Chair Janet Yellen this week as well as a European Central Bank meeting on Thursday.

Yellen’s comments are expected to underpin bets on the first US interest rate hike in nearly a decade is just weeks away, while eurozone policy makers are expected to expand their stimulus efforts.

In 12.42pm trading in New York, the Dow Jones Industrial Average fell 0.25 percent. In 12.27pm trading, the Standard & Poor’s 500 Index slid 0.23 percent, while the Nasdaq Composite Index declined 0.42 percent.

Slides in shares Wal-Mart Stores and those Walt Disney, last down 1.6 percent and 1.4 percent respectively, led the Dow lower.

"The market has largely priced in a December hike and it would have to take a pretty significant miss with the jobs report to give the Fed some pause before its next meeting,” Randy Frederick, managing director of trading and derivatives for Charles Schwab in Austin, Texas, told Reuters.

A US government report on Friday is expected to show non-farm payrolls rose by 200,000 in November.

In Europe, the Stoxx 600 Index finished the day with a 0.5 percent increase from the previous close. France’s CAC 40 Index added 0.6 percent, while Germany’s DAX Index gained 0.8 percent. The UK’s FTSE 100 Index fell 0.3 percent. The euro fell against the greenback, hitting its weakest level since April.

“It’s all about assessing your positions ahead of the ECB this week,” Allan von Mehren, chief analyst at Danske Bank in Copenhagen, told Bloomberg. “That will give investors some direction going into the new year. While I think [ECB President Mario] Draghi will deliver, the market has already been priced quite aggressively for a deposit rate cut. We might get a case of people buying the rumour and selling the fact.”

The anticipated divergence in monetary policy in the US and the eurozone has widened the gap between benchmark two year US and eurozone yields to the broadest level since 2006, with US two year notes yielding 135 basis point more than their German counterparts.

“There is potential for that to stay that wide or widen even further depending on how expectations of ECB and Fed policy change over the coming months,” Peter Chatwell, head of rates strategy at Mizuho International in London, told Bloomberg

The International Monetary Fund said it decided to include the Chinese yuan, in its basket of currencies that make up the Special Drawing Rights, or reserve currencies. The addition will take effect on October 1, 2016.

"The yuan is determined to be a freely usable currency and will be included in the SDR basket as a fifth currency, along with the US dollar, the euro, the Japanese yen and the British pound,” the IMF said in a statement.

“The Executive Board's decision to include the RMB in the SDR basket is an important milestone in the integration of the Chinese economy into the global financial system,” IMF Managing Director Ms. Christine Lagarde said in a statement.

“It is also a recognition of the progress that the Chinese authorities have made in the past years in reforming China’s monetary and financial systems,” Lagarde said. “The continuation and deepening of these efforts will bring about a more robust international monetary and financial system, which in turn will support the growth and stability of China and the global economy.”

BusinessDesk.co.nz

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