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June 28, 2017

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World stocks fall on Fed interest-rate message

TOKYO/HONG KONG--Global stocks fell Thursday after comments from the new head of the Federal Reserve suggested U.S. interest rates could rise sooner than financial markets were anticipating.

Janet Yellen's comments after the Fed's first policy meeting since she replaced Ben Bernanke rippled through Asian and European markets Thursday after sending Wall Street lower and the dollar higher the previous day.

Germany's DAX lost 0.5 percent to 9,226.84 in early trading and France's CAC 40 inched down 0.4 percent to 4,289.02. Britain's FTSE 100 shed 0.8 percent to 6,520.48.

Futures suggested Wall Street would extend the previous day's losses. Dow futures were down 0.1 percent at 16,122 and S&P 500 futures dropped 0.1 percent to 1,850.30.

Hiromichi Tamura, chief strategist at Nomura Securities Co. in Tokyo, said higher U.S. interest rates were expected to come eventually, but there was "a surprise element" in Yellen's remarks.

'Era of strong dollar, weak stocks'

While that was expected, investors were rattled when Yellen, the bank's new chair, said at a news conference that the timeframe for a rate rise could be "on the order of around six months" after the stimulus ends.

With the present rate of reduction likely to see QE tapered off by the end of the year, that means rates could go up in the first half of 2015.

Michael James, managing director of equity trading at Wedbush Securities, said the timeframe suggested a rise in rates would come sooner than the market had been expecting.

The remarks sent U.S. stocks lower —the Dow fell 0.70 percent, the S&P 500 lost 0.61 percent and the Nasdaq shed 0.59 percent — while the dollar rallied.

"Yellen can be seen as not being so dovish as expected," said Hiromishi Shirakawa, research analyst at Credit Suisse. "We should pay attention to the possibility that the era of a firm dollar and weak stocks will start," he said in a note.

The dollar on Wednesday had its biggest one-day gain since August because of the higher interest rate talk.

Asian markets fell on Thursday after the head of the U.S. Federal Reserve hinted that the central bank could raise interest rates sooner than expected.

Tokyo dropped 1.65 percent, or 238.29 points, to 14,224.23, Sydney gave up 1.15 percent, or 61.6 points, to 5,294 and Seoul fell 0.94 percent, or 18.16 points, to close at 1,919.52.

Shanghai closed 1.40 percent lower, giving up 28.26 points to 1993.48, while Hong Kong shed 1.79 percent, or 386.53 points to 21,182.16.

Emerging markets were also hit as higher borrowing costs could see foreigners repatriating their money back to the United States. QE has been credited with fuelling a boom in developing nations as traders pumped cheaper cash into them in search of better returns on their investments.

Manila was down 0.70 percent, giving up 45.14 points to end at 6,417.35.

However, Wellington bucked the trend and rose 0.11 percent, or 5.68 points, to close at 5,160.39 after data showed New Zealand's economy picked up in 2013, helped by strong manufacturing.

Gold fetched US$1,325.28 an ounce at 0810 GMT compared with US$1,346.53 late Wednesday.

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