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Shares Pause After Record-Breaking Day -- 2nd Update

2 Mar 2017 11:42 am
By Riva Gold 

Stocks mostly cooled Thursday after their biggest daily advance this year, while expectations for higher U.S. interest rates continued to propel the dollar.

European stocks edged down slightly late morning from their highest close since 2015, while futures pointed to a small opening decline for the S&P 500. Asian bourses posted their best day in months, tracking steep gains overseas in the previous session.

The Dow Jones Industrial Average climbed above 21000 for the first time on Wednesday while the S&P 500 and Nasdaq Composite hit fresh records amid signs the Federal Reserve is increasingly optimistic on the U.S. economy and building hopes that President Donald Trump will deliver pro-growth policies.

"Equity investors are more certain than they have been about future earnings than at any point in past five years," said Edward Smith, asset allocation strategist at Rathbones.

"It makes us a little nervous. there's a good macro momentum story for why stocks should be higher, but stocks have run a long way and valuations in the States have become particularly stretched," he said.

In U.S. premarket trading, shares of Aurinia Pharmaceuticals rose 49%, leading gains in the S&P 500.

Later Thursday, Snap. Inc. will start trading on the New York Stock Exchange after pricing its initial public offering above expectations Wednesday in the biggest technology IPO in the U.S. since 2014.

Gains in stock prices have come as expectations have also doubled for the Fed to raise borrowing costs this month. Fed governor Lael Brainard, normally considered by investors to be dovish, offered a fresh boost to expectations for higher U.S. interest rates late Wednesday, lifting the dollar.

"We are closing in on full employment, inflation is moving gradually toward our target, foreign growth is on more solid footing, and risks to the outlook are as close to balanced as they have been in some time," she said.

U.S. two-year Treasury yields, which are most sensitive to changes in expectations for rate increases, were little changed Thursday after climbing to their highest close in more than seven years Wednesday. Yields on 10-year U.S. Treasurys were steady at 2.464% from 2.462%, after their biggest daily yield jump since November, while their German counterparts rose to 0.295% from 0.283%. Yields move inversely to prices.

The WSJ Dollar Index was last up 0.3% after four days of gains, as the prospect of higher interest rates tends to make the dollar more attractive to yield-seeking investors.

Fed Chairwoman Janet Yellen is set to deliver a speech on Friday that will be closely monitored for additional hints about the prospect of a rate rise this month. Fed-fund futures tracked by CME Group suggest investors currently see a 66% chance of a rate rise this month. That probably stood at roughly 30% for most of the year.

"Friday becomes of utmost importance. it's the last chance to nudge the market a little more about how live is March," said Jim Smigiel, chief investment officer at SEI Investments Co. "It's going to be a coin flip."

In stock markets, the Stoxx Europe 600 was flat midday as losses in the food and beverage sector kept the pan-European index subdued. Shares of Anheuser-Busch InBev NV led declines after the world's largest brewer reported weaker-than-expected earnings.

The euro was little changed at $1.0527 after data Thursday showed the annual rate of i nflation in the eurozone rose above the European Central Bank's target rate for the first time in four years in February.

Analysts said that while the news could add to calls for the ECB to reconsider its massive bond-purchase program, policy makers aren't yet convinced the current rate of inflation will be sustained when the rise in energy prices comes to a halt.

The British pound was down 0.1% against the dollar at $1.2282, on track for a fifth session of declines. U.K. Prime Minister Theresa May said her plans to start exit talks from the EU by the end of March would remain on track, after the U.K. government suffered its first setback in its bid to introduce legislation starting the process of withdrawing from the European Union.

Earlier, Asian markets mostly climbed Thursday, tracking Wednesday's advance in the U.S. and Europe. Japan's Nikkei Stock Average added 0.9% to close at a two-month high as the yen continued to ease against the dollar, boosting export-oriented stocks. The dollar was last up 0.4% against the yen.

Financial stocks were among the best performers in Asia as bond yields climbed and expectations for higher U.S. interest rates were seen as good news for banks' margins.

Australia's S&P ASX 200 rose 1.3% in its best session in three months, led by gains in banks and mining stocks.

Shanghai shares fell 0.5% however ahead of annual political meetings set to start this weekend, while Hong Kong's Hang Seng dipped 0.2%.

Ese Erheriene, Nicholas Winning and Paul Hannon contributed to this article.

Write to Riva Gold at riva.gold@wsj.com

(END) Dow Jones Newswires

March 02, 2017 06:42 ET (11:42 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.
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