While you were sleeping: US rate lift bets

Friday 30th October 2015

Wall Street and US Treasuries fell after a report on US economic growth showed the Federal Reserve might have enough reason to lift interest rates at its December gathering.

A Commerce Department report showed US gross domestic product expanded at a 1.5 percent annual rate in the third quarter, down from a 3.9 percent pace in the second quarter. To be sure, companies clearing inventory weighed on the most recent quarter, during which demand from consumers and businesses was solid.

The data came hot on the heels of the conclusion of a two-day Federal Open Market Committee meeting on Wednesday; policy makers held their target rate though they also kept the door open to a potential hike at the next Fed meeting in December.

"The guts of the report were healthy, they still show strong underlying momentum in the economy and that puts a December rate hike firmly on the table," Thomas Costerg, a US economist at Standard Chartered Bank in New York, told Reuters.

In New York trading at about 1.55pm, the Dow Jones industrial average fell 0.3 percent, while the Standard & Poor’s 500 Index slid 0.2 percent and the Nasdaq Composite Index shed 0.3 percent.

US Treasuries also declined, pushing yields on the 10-year note 3 basis points higher to 2.12 percent. Commodities weakened too.

“Hot money that flowed in, as some investors tried to trade the Fed, is now flowing out quickly,” Nathan Griffiths, who manages about US$800 million in emerging-market stocks at NN Investment Partners in The Hague, told Bloomberg. “There is a very minute focus on when the Fed raises its reference rate precisely because growth fundamentals are so weak, particularly in emerging markets.”

The Dow moved lower as slides in shares of Intel and those of Pfizer, last 1.8 percent and 1.7 percent weaker respectively, overshadowed gains in shares of Procter & Gamble and those of Wal-Mart, last up 0.8 percent and 0.7 percent respectively.

Shares of Pfizer fell after the company and Allergan said they were “in preliminary friendly discussions regarding a potential business combination transaction”.

US-listed shares of Dublin-based Allergan jumped 7.1 percent

"It's definitely a far easier target for Pfizer than AstraZeneca," Christophe Eggmann, investment director at GAM, who holds shares in both companies, told Reuters. "It fits pretty well ... for Pfizer, so the hurdle will really be the price."

In Europe, the Stoxx 600 Index ended the day with a 0.1 percent dip from the previous close amid disappointing earnings from Deutsche Bank and Barclays. France’s CAC 40 Index slipped 0.1 percent, Germany’s DAX Index fell 0.3 percent, while the UK’s FTSE 100 Index dropped 0.7 percent.

Meanwhile, China Premier Li Keqiang has told Communist Party members that the country needs annual growth of at least 6.53 percent in the next five years, according to Bloomberg, in order to establish a “moderately prosperous society”.

BusinessDesk.co.nz

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