While you were sleeping: Stocks climb on US rate view

Tuesday 6th October 2015

Stocks rallied on both sides of the Atlantic, while US Treasuries and the greenback dipped, amid expectations the US Federal Reserve might hold off on raising interest rates this year.

The latest US government non-farm payrolls report, released last Friday, showed a weaker than expected labour market. That called into question the need for policy makers to lift rates.

“The way the market is looking at the payrolls numbers is weak enough to diminish the case for higher US rates, but not weak enough to point to a materially weaker economy,” Adam Cole, the London-based head of global foreign exchange strategy at Royal Bank of Canada, told Bloomberg. “They’re positive for risk appetite.”

Indeed, investors piled into equities, also attractive given valuations after a recent sell-off. Meanwhile, US Treasuries fell, pushing yields on the benchmark 10-year note seven basis points higher to 2.06 percent. Euro-zone bonds also declined.

In New York trading at about 2.35pm, the Dow Jones industrial average climbed 1.8 percent, while the Standard & Poor’s 500 Index rose 1.7 percent, and the Nasdaq Composite Index added 1.5 percent.

"September was the best time to raise rates and now it looks like it was the only time they could raise rates," Mohannad Aama, managing director, Beam Capital Management in New York, told Reuters.

On Monday, a report showed the Institute for Supply Management’s services index fell more than expected, sliding to 56.9 in September, down from 59 in August.

To be sure, Boston Fed chief Eric Rosengren told Reuters on Monday that he still expected the Fed to raise rates this year despite the "weak" jobs report.

Rallies in shares of General Electric and those of Caterpillar, last up 5.5 percent and 5 percent respectively, helped propel the Dow higher.

In Europe, the Stoxx 600 Index ended the day with a 3 percent rally from the previous close. Germany’s DAX Index gained 2.7 percent, while the UK’s FTSE 100 Index and France’s CAC 400 Index both jumped 2.8 percent.

Shares in Glencore surged 21 percent in London in another day of wild price swings.

The positive sentiment on equities markets extended to commodities, including oil. US crude climbed 2 percent, also underpinned by Russia saying it was now open to discussions on the market with other oil-producing nations. Separately, data showed a decline in the number of rigs drilling for crude in the US.

The outlook for oil, though, remains clouded.

"We still are bearish on oil given the excess in the market, and the time required to clear all the excess crude and oil products supply," Abhishek Deshpande, London-based analyst for French bank Natixis, told Reuters.

Investors are gearing up for the start of a fresh US earnings season. S&P 500 companies are expected to post a 4.2 percent decline in earnings, according to Thomson Reuters data.

BusinessDesk.co.nz

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