New | Strong US service sector report lifts stocks, places September rate rise firmly on table
Global equities markets rose on Wednesday on data showing the pace of growth in the US service sector surged in July to a decade high, as well as being boosted by solid corporate results in Europe, while the dollar teetered as investors gauged the likelihood of a September interest rate hike.
The US Institute for Supply Management’s services sector index rose to 60.3, its highest reading since August 2005, on sharp increases in business activity, employment and new orders. It beat expectations for a 56.2 reading. A reading above 50 indicates growth.
The data backed views the Federal Reserve will raise rates in September after weaker-than-expected US private hiring figures for July released earlier in the day kindled doubts about a rate hike next month.
The market reflected "a modest bounce back after discernable pressure over the last trading sessions," said Chad Morganlander, portfolio manager at Stifel, Nicolaus & Co in Florham Park, New Jersey.
The dollar mostly rose, supported by comments from Atlanta Federal Reserve President Dennis Lockhart, who is regarded as a centrist policymaker. Lockhart, in an interview on Tuesday, put September back on the table for the first US rate rise in almost a decade.
Lockhart told The Wall Street Journal it would take "significant deterioration" in the U.S. economy for him to not support a rate hike next month.
Against the yen, the greenback rose to a two-month high, gaining 0.39 per cent to 124.87. The US dollar index slipped 0.02 per cent at 97.916. The euro gained 0.17 per cent to $1.0898, reversing earlier losses.
Wall Street mostly rose, but the Dow industrials fell even though gainers outpaced declining shares by 2 to 1. Shares of Dow component Walt Disney Co plunged 9.1 per cent, the shares’ largest single-day decline since 2008. Disney cut the profit forecast for its cable networks unit, spooking the entire industry.
The Dow Jones industrial average closed down 10.22 points, or 0.06 per cent, to 17,540.47. The S&P 500 rose 6.52 points, or 0.31 per cent, to 2,099.84, and the Nasdaq Composite added 34.40 points, or 0.67 per cent, to 5,139.95.
Stocks gained more than 1.0 per cent in Europe, with the pan-European FTSEurofirst 300 index closing up 1.31 per cent at 1,601.66. MSCI’s all-country world stock index rose 0.24 per cent.
Societe Generale shares jumped 7.9 per cent after the French bank became the latest major European company to post forecast-beating earnings. Regional automakers, which fell in late July on concerns about a slowing China, rallied. The STOXX Europe index of 15 companies rose 2.5 per cent.
In debt markets, US Treasuries prices fell, while a sell-off in European bonds accelerated, after the strong ISM report. The benchmark 10-year US Treasury note fell 16/32 in price to yield 2.2699 per cent.
German 10-year yields, the euro zone’s benchmark, jumped 12 basis points to 0.75 per cent.
Oil prices hit multi-month lows on a surge in US gasoline stockpiles as the summer season, the country’s biggest demand period for motor fuels, neared its end.
Futures of Brent, the global oil benchmark, hit a six-month bottom while US crude touched a 4-1/2-month trough, ignoring a bigger-than-expected drawdown in US crude stockpiles announced by the Energy Information Administration.
September Brent crude oil futures fell 40 cents to settle at US$49.59 a barrel. US crude for September delivery settled down 59 cents at $45.15 a barrel.
