While you were sleeping: Oil rallies

Tuesday 13th December 2016

Wall Street was mixed, after both the Dow and the S&P 500 touched record highs again, while oil prices rallied amid a fresh agreement to ease output.

The Federal Reserve, which is set to start its two-day policy meeting on Tuesday, is widely expected to announce its first rate hike in a year the next day. Investors will scrutinise Fed chair Janet Yellen’s post-meeting press conference as well as the central bank’s latest quarterly economic projections and fed funds rate outlook for clues about the pace of future rate increases.

US President-elect Donald Trump has pledged to up government spending and lowering taxes.

“This year we have the promise of fiscal stimulus—something that the Federal Reserve has been clamouring for,” Anthony Chan, chief economist at JPMorgan Chase’s private wealth management unit in New York, told Bloomberg.

“With an economy that is running hot—granted, the Fed chair has talked about letting the economy run a little hotter—if that continues, then you are going to see the Federal Reserve having to do a little bit more” hiking than they may have thought, he said.

For Wednesday, futures traders are pricing in a 100 percent chance officials will raise borrowing costs, compared with 68 percent odds at the start of November, according to Bloomberg. Indeed, all 120 economists in a Reuters poll predict a rate hike.

In 1.16pm trading in New York, the Dow Jones Industrial Average eked out a 0.1 percent gain. The Nasdaq Composite Index dropped 0.8 percent. In 1.01pm trading, the Standard & Poor’s 500 Index fell 0.2 percent.

The Dow rose to a record-high 19,824.59, while the S&P 500 climbed to a record 2,264.03 before retreating.

"The market has been rising on the incoming administration's proposals, but how many of those actually pass through Congress remains to be seen," Paul Nolte, portfolio manager at Kingsview Asset Management in Chicago, told Reuters. “Investors are expecting the Fed to hike rates but are more interested in the tone of the statement.”

In the Dow, gains in shares of Pfizer and those of Johnson & Johnson, recently trading 2.9 percent and 2.6 percent higher respectively, offset slides in shares of Goldman Sachs and those of American Express, down 1.8 percent and 1.5 percent respectively.

In Europe, the Stoxx 600 Index ended the day with a 0.5 percent decline from the previous close. France’s CAC 40 Index slipped 0.1 percent, as did Germany’s DAX Index, while the UK’s FTSE 100 Index shed 0.9 percent.

Oil prices soared, rising more than 6 percent, as non-OPEC producers including Russia agreed to cut production by 558,000 barrels per day next year. Saudi Arabia, meanwhile, flagged it could ease output more than previously agreed.

“Right now the market is kind of feeding on itself," Gene McGillian, manager of market research at Tradition Energy in Stamford, Connecticut, told Reuters.

Prices might climb further, though once US crude reaches US$55 and Brent about US$60, “there are some concerns that are going to start to cap the rally,” McGillian noted.

BusinessDesk.co.nz

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