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.”

CHINA INFLATION: Chinese consumer and wholesale inflation ticked higher, fueling concern the central bank might hike rates or tighten access to credit. Analysts said they saw no sign the People’s Bank of China would change course but money market rates should be elevated this year. Policymakers have indicated a “tightening bias” for policy since late last year but December and January data on credit “clearly show that there has been no meaningful monetary and credit tightening at the macro level,” said UBS economists in a report.

ASIA’S DAY: Asian markets finished mostly higher. Tokyo’s Nikkei 225 index rose 1 per cent to 19,437.98 and Hong Kong’s Hang Seng jumped 1.2 per cent to 23,994.87. Sydney’s S&P-ASX 200 gained 0.9 per cent to 5,809.10. Seoul’s Kospi added 0.5 per cent to 2,088.48. The Shanghai Composite Index slipped 0.2 per cent to 3,212.99 and India’s Sensex lost 0.7 per cent to 28,155.56. Benchmarks in New Zealand and Taiwan rose, while Southeast Asian markets mostly declined.

CURRENCY: The dollar gained to 114.44 yen from Tuesday’s 114.31 yen. The euro edged down to $1.0556 from $1.0571.

ENERGY: Benchmark U.S. crude sank 34 cents to $52.86 per barrel in electronic trading on the New York Mercantile Exchange. The contract gained 27 cents on Tuesday. Brent crude, used to price international oils, lost 30 cents to $55.67 in London. It advanced 38 cents the previous session.