Global stocks gain as Fed shows confidence in rate hikes
BEIJING — Global stock markets rose on Wednesday after Federal Reserve chair Janet Yellen said the U.S. central bank could raise interest rates as soon as next month, a sign of confidence in the strength of the world’s largest economy.
KEEPING SCORE: Britain’s FTSE 100 gained 0.5 per cent to 7,305 while France’s CAC 40 rose 0.6 per cent to 4,922. Germany’s DAX was up 0.2 per cent to 11,795. Wall Street looked set for a tepid start, with Dow futures up 0.1 per cent. S&P futures were unchanged.
FED WATCH: Yellen told a Senate committee on Tuesday that the central bank could raise interest rates as soon as next month. Bond yields jumped and fed through to shares of banks, which can benefit from higher rates by charging more for loans. The Fed raised interest rates in December for just the second time in a decade, and Yellen said the strengthening job market and a modest move higher in inflation should warrant continued, gradual increases.
ANALYST’S TAKE: Yellen’s comments were “the main catalyst for overnight markets, evidently surprising on the hawkish side,” said Jingyi Pan of IG in a report. “While the market had expected a strong rhetoric on improving economic conditions, the push to hasten the next rate hike had been unexpected.” Based on history, markets put the likelihood of a policy change out of the Fed’s March meeting at 34 per cent, Pan said, “but that had not stopped the U.S. dollar and equity markets from ticking up.”