Wall Street managed to claw back losses seen at the start of the trading day, as gains across semiconductor shares countered weakness in resource shares.
Rate hike speculation weighed on US equity markets during the first half hour of trading, as Friday’s robust US non-farm payrolls left the market feeling as if it had underestimated the strength of the US economy.
This view encouraged the market to start factoring in a higher probability of an interest rate hike over the short to medium term, and led some investors to buy back the Dollar.
This development that is strengthening the Dollar, weakening commodity prices and weighing on resource shares.
December gold futures traded 2.3% lower at $1142 per troy ounce, while December high grade copper fell 1.6% to $3.1625 per pound this afternoon.
Meanwhile, January light sweet crude oil slid 1.2% to $74.54 a barrel.
Not surprisingly, shares of Freeport-McMoRan Copper & Gold traded 0.7% lower at 79.31, while Newmont Mining was 0.8% lower at $51.64.
Financials were mixed, with credit card company American Express rising 1.6% to $39.92, following an upgrade by Bank of America Merrill Lynch. [1]
In contrast, Citigroup fell nearly 1% to $4.08, and Bank of America retreated 0.6% to $16.18.
Semiconductor shares put on a strong performance, however, with Advanced Micro Devices and Nvdia Corp rallying 7.8% to $8.47 and 12.4% to $16.05 respectively, after Citigroup upped their price targets. [2]
By around 3.30pm (London time), the Dow Jones Industrial Average traded 37.56 points (+0.36%) higher at 10426.46, while the broader S&P 500 was 3.12 points (+0.28%) above its previous close at 1109.10. The Nasdaq, meanwhile, had advanced 3.59 points (+0.20%) to 1795.50.
Going forward, there is still quite a bit of uncertainty over the direction of US interest rates and I suggest investors keep their ears open for any comments made by the Federal Reserve chairman Ben Bernanke.
As a matter of fact, the Fed chairman is scheduled to deliver a speech today at 5pm (London time).
‘We expect volatility to continue, as investors are still concerned about what the Fed’s going to do in light of Friday’s jobs report,’ said Adam Sarhan of Sarhan Capital.
‘Are we going to continue to see stronger-than expected economic data come out? If so, that could cause the Fed to change its views.’ [3]
Source: [1] Wall Street Journal (7 December 2009)
Source: [2] Bloomberg News (7 December 2009)
Source: [3] Wall Street Journal (7 December 2009)
By Anthony Grech, Research Analyst, IG Index.
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