USA shares gain, European shares dip on Fed rate hike bets

Andrew Cummings
August 30, 2016

FED FACTOR: U.S. Fed Chair Janet Yellen made comments on Friday that were bullish on the economy but gave no timetable for future rate increases.

Insurers staged a rally as higher United States rates would allow them to reap yield gains from their investments in U.S. bonds, while their domestic stock portfolio would also benefit from Nikkei's uptick.

Gold is highly-sensitive to rising US interest rates, which increase the opportunity cost of holding non-yielding bullion while boosting the dollar, in which it is priced. The advances helped Wall Street snap a three-day losing streak.

Supporting the case for higher rates was a report that showed consumer spending, which accounts for more than two-thirds of US economic activity, rose for the fourth straight month in July.

The San Francisco Fed underlined the subdued outlook for inflation and rates in a research note.

While Yellen did not indicate when the Fed might raise rates, her hawkish comments have got markets focused on higher U.S. rates before year-end, traders said. At 9:39 a.m. ET (1339 GMT), the Dow Jones Industrial Average .dji was up 74.82 points, or 0.41 percent, at 18,470.22.The S&P 500 .spx was up 8.05 points, or 0.37 percent, at 2,177.09.The Nasdaq Composite .ixic was up 11.51 points, or 0.22 percent, at 5,230.42.The dollar index .dxy rose 0.25 percent, trading at more than a two-week high, while oil prices slipped more than 1 percent. London was closed for a holiday.

The S&P 500 (^GSPC)rose 10 points, or 0.47 percent, to 2,178, with financials leading all sectors higher.

Y was the best performer on the S&P 500, with Wells Fargo (WFC.N) up 2.2 percent.

The U.S. Commerce Department said that consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.3 percent last month after a 0.5 percent gain in June.

Among other precious metals, spot silver dropped about 1 per cent to $18.43 an ounce, and spot palladium eased 0.42 per cent to $682.63 per ounce.

"Even though it looks like the Fed may tighten in September and will probably tighten by December, people are still looking at Treasuries saying, 'I like those yields, '" said Evercore ISI strategist Stan Shipley. Yields for government debt in much of Europe are at or near all-time lows and both German and Japanese government bonds hold negative yields out to 10 years of maturity.

All momentum from the tailwind crude experienced at the end of last week fizzled out as the stronger U.S. dollar pressured prices throughout the day.

Oil markets fell Monday, weighed in part by a rising dollar, as US crude (New York Mercantile Exchange: @CL.1) fell more than 1.5 percent to $46.87 a barrel. Oversupply remained a major concern with US crude stockpiles forecast to have risen by 1.3 million barrels last week, a Reuters poll showed.

Safe-haven spot gold (XAU=) rebounded from a near five-week low of $1,314.70 after the dollar pared its gains.

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