While you were sleeping: US rates, Greece in focus

Friday 29th May 2015

Equities on both sides of the Atlantic moved lower as investors tried to gauge the timing of a US Federal Reserve interest rate increase, and the potential for a deal between Greece and its international creditors to stave off financial collapse.

In late trading in New York, the Dow Jones Industrial Average slid 0.38 percent, the Standard & Poor’s 500 Index fell 0.35 percent, while the Nasdaq Composite Index declined 0.32 percent.

The Dow moved lower with slides in shares of Caterpillar and those of Boeing, down 2.3 percent and 0.6 percent respectively.

A report showed the number of Americans filing new claims for unemployment benefits unexpectedly rose by 7,000 to 282,000 last week, from an upwardly revised 275,000 the prior week.

Separately, the National Association of Realtors’ index of pending home resales increased 3.4 percent in April to the highest level in nine years, adding to optimism the housing industry is finally gathering some steam.

"Realtors are saying foot traffic remains elevated this spring despite limited, and in some cases severe inventory shortages in many metro areas," Lawrence Yun, NAR chief economist, said in a statement. "Homeowners looking to sell this spring appear to be in the driver's seat, as there are more buyers competing for a limited number of homes available for sale."

The latest data underpinned optimism the US economy is recovering from its lacklustre first quarter; a report on Friday is expected to show a contraction of 0.8 percent for the first three months of 2015, following an earlier reading of a 0.2 percent increase.

“We’re seeing an improving labour market and an improving housing market,” Jim O’Sullivan, chief US economist at High Frequency Economics in Valhalla, New York, told Bloomberg. “The two go hand in hand. The claims and home sales reports are encouraging for second quarter growth.”

Fed Chair Janet Yellen said earlier this month that the central bank still expects to raise rates this year.

"We still think September is the best time for a rate hike, but the pace is going to be slow and methodical," Terry Sandven, chief equity strategist at US Bank Wealth Management in Minneapolis, told Reuters.

The US dollar strengthened against the yen and the euro, and might extend those gains.

"I see the dollar trade probably continuing at this point since we're the only ones moving toward a tightening bias,” Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont, told Reuters. "Greece is the wild card in terms of what will happen to the euro."

Indeed all eurozone eyes are on Greece and the negotiations with its lenders before another payment is due next week. An official said the International Monetary Fund believes Greece may need debt relief and is far apart from creditors on debt talks, according to Bloomberg.

“The mixed messages are all part of the political game,” Allan von Mehren, chief analyst at Danske Bank, told Bloomberg. “It means we can expect sentiment to swing back and forth until we really get to crunch time on Greece, and I don’t think we’ll get a deal until the very last day. Markets will be quite volatile as everyone tries to read the signals.”

In Europe, the Stoxx 600 Index finished the session with a 0.5 percent drop from the previous close. Germany’s DAX shed 0.8 percent, while France’s CAC 40 Index fell 0.9 percent. The UK’s FTSE 100 Index rose 0.1 percent.

In the latest M&A activity, Avago Technologies agreed to buy Broadcom for US$37 billion. Avago shares last traded 0.4 percent lower, while those of Broadcom last traded 2.6 percent lower. Both stocks had gained on Wednesday amid rumours of a pending deal.

“The combination of Avago and Broadcom creates a global diversified leader in wired and wireless communication semiconductors,” Hock Tan, Avago chief executive, said in a statement.

Data from the Energy Information Administration on Thursday showed crude oil inventories fell more than expected, declining by 2.8 million barrels in the last week.

BusinessDesk.co.nz

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