Financial Shares Climb as Investors Bet on U.S. Rate Rise -- 2nd Update
September 21 2017 - 5:44AM
Dow Jones News
By Riva Gold and Kenan Machado
-- Bank shares gain as investors digest Fed's stance
-- Bonds and gold under pressure
-- Bank of Japan keeps policy unchanged
Global bank shares climbed Thursday, while haven assets came
under pressure, after the Federal Reserve signaled it remained on
track to raise interest rates later in 2017.
The Stoxx Europe 600 rose 0.3% in morning trading, led a 1.7%
advance in lenders following gains in their U.S. and Asian
peers.
Shares of U.S. financial stocks rose Wednesday, helping lift the
Dow Jones Industrial Average and S&P 500 to record highs after
the U.S. central bank kept the door open for a December
interest-rate rise and said it would begin shrinking its portfolio
of bonds in October. Higher rates tend to boost banks' net interest
margins, a measure of lending profitability.
CME Fed-fund futures, used by investors to bet on central bank
policy, show investors now see a 68.5% chance of higher U.S.
interest rates by the end of the year, compared with 57.7% a day
earlier. Officials signalled they continue to expect three rate
increases next year, two in 2019 and one in 2020, suggesting
continued optimism about the economy despite low inflation.
Many investors "may have expected a more dovish outcome" from
the Fed, "especially on the interest-rate projections," said Steven
Friedman, a senior economist at BNP Paribas Asset Management.
Futures pointed to a 0.1% opening decline for the S&P 500 on
Thursday and a flat opening for the Dow.
Shares of Germany's Commerzbank led gains in European banks
following media reports of merger interest by Italy's UniCredit,
whose shares were up 2.4%.
Shares of utilities companies in Europe and Asia, considered
bond-proxies in the stock market, moved lower. Utilities are a
favorite for investors seeking higher yields, so rising interest
rates lessen their allure. European utilities companies were down
0.8% and telecommunications companies fell 0.5%, while in
Australia, the S&P/ASX 200 slid 0.9% as the utilities subindex
fell to its lowest level in 2017.
Also weighing down Australian stocks, but helping those in Japan
and Europe was a jump in the U.S. dollar which pulled metals prices
lower. The WSJ Dollar Index, which tracks the greenback against a
basket of 16 currencies, was last up 0.1%, after its biggest gain
in a week on Wednesday.
As assets considered safe came under pressure, gold fell 1.2% to
$1,301 an ounce, around its lowest since late August.
Yields on 10-year German government bonds rose to 0.473%
Thursday, around a six-week high, from 0.435% Wednesday before the
Fed decision, while 10-year Treasury yields steadied at 2.270%
after climbing to 2.276% Wednesday. The yield on the two-year U.S.
Treasury note, which tends to be more sensitive to market
expectations, rose to its highest level since November 2008 after
the meeting but steadied on Thursday. Yields move inversely to
prices.
In Asian trading, Japan's Nikkei Stock Average edged up 0.2%,
with insurers gaining on higher bond yields and exporters
benefiting from a weaker yen.
Investors showed little reaction after the Bank of Japan left
its policy unchanged Thursday, sticking to its massive stimulus
program. New board member Goushi Kataoka voted against keeping the
interest rate targets unchanged, saying they were insufficient for
reaching the bank's inflation target.
Taiwan's Taiex index rose 0.6% in the wake of HTC's $1.1 billion
smartphone deal with Google.
Indexes elsewhere in Asia were little changed, with slight
declines in Hong Kong, Shanghai and South Korea.
Write to Riva Gold at riva.gold@wsj.com and Kenan Machado at
kenan.machado@wsj.com
(END) Dow Jones Newswires
September 21, 2017 05:29 ET (09:29 GMT)
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