Wall Street stocks get back up after stumbling on rate hike fears

LONDON: Wall Street stocks ticked higher on Wednesday, a day after an upbeat assessment of the US economy by Federal Reserve boss Jerome Powell fanned fears of a sharp rise in interest rates sent equities tumbling.

The Dow Jones Industrial Average added 0.06 percent, with the broader S&P 500 and tech-heavy Nasdaq Composite also moving higher.

“American stocks are bouncing back after the negative finish last night. Dealers are content to take advantage of relatively cheap prices,” said market analyst David Madden at CMC Markets UK.

Powell, making on Tuesday his debut before Washington lawmakers, said the outlook for the US economy had improved since December when President Donald Trump pushed through massive across-the-board tax cuts.

“Powell’s unequivocal optimism over the outlook for the US economy and his hawkishness have led investors to believe that the Fed could take a more aggressive approach to monetary policy,” said City Index analyst Fiona Cincotta.

While it was a positive sign for the world’s top economy, the appraisal spooked investors already on edge at the prospect of higher borrowing costs. They forecast four rate rises this year rather than the three previously expected.

World markets suffered a sharp drop at the start of February after strong jobs and wages data sparked concerns that inflation would surge, and in turn force the Fed to ramp up borrowing costs.

The Dow and Nasdaq both fell 1.2 percent Tuesday while the S&P 500 dropped 1.3 percent.

Confidence was also bolstered by an update to US growth figures that left the whole-year estimate for 2017 unchanged at 2.3 percent, up from 1.5 percent in 2016.

– UK pound weighed down –

Asian equity markets took their lead from Wall Street, with sentiment also hit from news of the third successive monthly fall in China’s purchasing managers’ index (PMI) survey of factory activity to a 19-month low in February.

That news weighed heavily on London’s energy and mining sectors because the Asian powerhouse economy is a top consumer of many raw materials.

European markets tried to follow Wall Street higher, but finished the day down

London’s FTSE 100 index shed 0.7 percent as shares in British broadcaster ITV slumped over seven percent, topping the London FTSE 100 fallers’ board.

The company posted declining advertising revenues, in the first results under new chief executive Carolyn McCall, the former boss of low-cost airline EasyJet.

Sentiment was jolted also by news that around 6,000 jobs could be lost following the collapse both of the UK arm of Toys’R’Us and British electrical retailer Maplin.

The European single currency drifted lower following news that eurozone inflation slowed to 1.2 percent in February.

That could make it less likely that the European Central Bank will turn off its massive stimulus programme in the near future.

Meanwhile the pound fell after the EU released its draft proposal for Brexit, which Prime Minister Theresa May angrily rejected and said “no UK prime minister could ever agree to it”.

The EU draft proposes keeping British-ruled Northern Ireland in a customs union if there is no better solution to avoid a hard border with EU-member Ireland, and its chief negotiator said the pace of trade talks needs to pick up to reach a deal this year.

“A bout of Brexit nerves gripped the pound on Wednesday afternoon,” said analyst Connor Campbell at Spreadex.

– Key figures around 1630 GMT –

London – FTSE 100: DOWN 0.7 percent at 7,231.91 points (close)

Frankfurt – DAX 30: DOWN 0.4 percent at 12,435.85 (close)

Paris – CAC 40: DOWN 0.4 percent at 5,320.49 (close)

EURO STOXX 50: DOWN 0.5 percent at 3,440.08

New York – DOW: UP 0.06 percent at 25,5424.91

Tokyo – Nikkei 225: DOWN 1.4 percent at 22,068.24 (close)

Hong Kong – Hang Seng: DOWN 1.4 percent at 30,844.72 (close)

Shanghai – Composite: DOWN 1.0 percent at 3,259.41 (close)

Euro/dollar: DOWN at $1.2211 from $1.2233 at 2200 GMT

Pound/dollar: DOWN at $1.3800 from $1.3909