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Dollar soars, stocks gain amid talk of Fed QE exit

Fed’s Williams says stimulus reduction could start this summer; US dollar index hits nearly three-year high
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First Published: Fri, May 17 2013. 09 52 PM IST
Traders work on the floor of the New York Stock Exchange. Photo: AFP
Traders work on the floor of the New York Stock Exchange. Photo: AFP
Updated: Sat, May 18 2013. 01 05 AM IST
New York: The dollar soared on Friday against major currencies on growing speculation that the Federal Reserve could soon begin to rein in its asset-buying program and after data showed US consumer sentiment hit an almost six-year high in early May.
Global equity indexes pushed to new highs, with the benchmark S&P 500 rebounding from its worst drop in nearly three weeks. Major European equity indexes climbed to highs last seen five years ago or longer, helped by a rally in automakers’ shares, which rose on signs of a revival in domestic sales.
Stocks on both sides of the Atlantic were boosted after a survey of US consumer sentiment in early May rose more than economists had expected, with more Americans giving favourable views about their financial and economic prospects, particularly among upper-income households.
In a separate report by an industry group, a gauge of future economic activity also suggested the expected US slowdown will be temporary, with the index rising in April to a near five-year high.
The two reports were encouraging after a raft of data on Thursday had suggested broader US growth is cooling.
The dollar’s strength was largely attributed to the euro, which fell to a six-week low on talk the European Central Bank (ECB) could introduce negative deposit rates, a move that effectively would make banks pay to park their cash overnight with the ECB.
The ECB had no immediate comment.
The dollar index, which measures its value against a basket of six major currencies, rose to 84.371, its highest in nearly three years. Around mid-day in New York, the dollar index was up 0.81% at 84.263.
The euro fell 0.42% to $1.2827, while the dollar hit a 4-1/2-year high versus the Japanese yen, up 0.95% at ¥103.21.
“The consumer sentiment report fed into the story of the US outperforming other countries,” said Sebastien Galy, FX strategist at Societe Generale in New York.
“Markets want to be long the dollar and there is a snowball effect going on,” he said. “Markets are also desperate for trends, and once they identify one they forge ahead.”
A measure of global equity activity, MSCI’s all-country world stock index, rose 0.15% in a rocky session as it was pulled downward by emerging markets.
The Dow Jones industrial average was up 101.45 points, or 0.67%, at 15,334.67. The Standard & Poor’s 500 Index was up 14.42 points, or 0.87%, at 1,664.89. The Nasdaq Composite Index was up 27.62 points, or 0.80%, at 3,492.86.
Among other indexes, the Russell 2000 index of small-and mid-cap stocks, was up 9.95 points, or 1.01%, at 995.29.
The FTSEurofirst-300 index of European shares bounced off session lows to rise 0.22% to close at 1,248.18, a five-year closing high. The index was up 1.3% for the week, marking a fourth straight week of gains.
In London, the FTSE-100 index gained 0.53% to 6,723.06, a level last seen in October 2007.
Gold fell for a seventh straight session, its longest losing streak in four years, driven by speculation that the Fed may soon ease its asset-purchase program.
Spot gold prices lost $23.29 to $1,362.40 an ounce.
US stocks and gold prices fell on Thursday, while the dollar rose following comments from John Williams, president of the Federal Reserve Bank of San Francisco, that the Fed could begin easing up on stimulus this summer.
Prices for US treasuries added to losses after the Thomson Reuters/University of Michigan’s preliminary reading on the overall index on consumer sentiment rose to 83.7 in early May from 76.4 last month, topping economists’ expectations for 78.
The May reading was the highest level since July 2007.
The benchmark 10-year US treasury note fell 22/32 in price to yield 1.9541%.
In Europe, German Bunds hit one-week highs, with traders citing talk that the ECB was checking with banks on whether they were ready for a potential cut in its deposit rate to below zero.
German Bund futures rose as much as 43 ticks on the day to 145.74, before paring gains to trade 17 ticks lower.
Oil climbed for a third straight session, supported by a raft of strong economic data, though the strong dollar limited gains.
Brent crude rose 86 cents to settle at $104.64 a barrel. US crude futures settled 86 cents higher at $96.02. Reuters
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First Published: Fri, May 17 2013. 09 52 PM IST