Wall Street higher but market set for worst quarter since 2011

30 Sep 2015 | Author: | No comments yet »

Ask an Economist: Should the Fed Raise Interest Rates?.

Wall Street was sharply higher on Wednesday, helped by gains in energy and healthcare stocks, but the three major indices were set for their worst quarter since 2011.Gold prices fell Wednesday after solid U.S. employment data strengthened the dollar and fueled speculation as to how soon the Federal Reserve might raise interest rates.Friday’s jobs report will be of particular significance to members of the Federal Open Market Committee, who earlier this month elected to postpone hiking interest rates.

The most actively traded contract, for December delivery, was recently down $10, or 0.9%, at $1,116.80 a troy ounce on the Comex division of the New York Mercantile Exchange. Company payrolls rose 200,000 in September, figures from the ADP Research Institute showed, beating the 190,000 median forecast of economists surveyed by Bloomberg. When Fed officials left rates unchanged at their September meeting, they said that the liftoff will come when they see “some further improvement in the labor market.” Tighter monetary policy hurts gold’s appeal because it doesn’t pay interest or give returns like assets such as bonds and equities.

Data on Wednesday showed that the US private sector added more jobs than expected in September, raising hopes of a strong reading in the government’s payrolls report due Friday. Still, investors will wait until Friday’s Labor Department jobs report, which is watched by Fed officials, before making any big decisions, said Bob Haberkorn, a senior commodities broker with RJO Futures in Chicago. ”If we come out in line or above expectation on Friday, you’ll start hearing that a Fed rate increase is on the table at their October meeting,” Mr. Since America’s central bank announced it would pass on an interest rate hike in September, Federal Reserve Chair Janet Yellen has repeatedly said the labor market has a little more ground to cover before the U.S. reaches full employment. And inflation, she has said, still has a ways to go before reaching the Fed’s desired 2 percent long-term growth rate. “Some slack remains in labor markets, and the effects of this slack and the influence of lower energy prices and past dollar appreciation have been significant factors keeping inflation below our goal,” Yellen said last week during a speech at the University of Massachusetts-Amherst. “Most FOMC participants, including myself, currently anticipate that achieving these conditions will likely entail an initial increase in the federal funds rate later this year.” John Canally, vice president and economist at LPL Financial, says the Fed should consider “ripping off the Band-Aid” and increase U.S. interest rates sooner rather than later. Inflation remains below the Fed’s 2% target. “The ADP numbers were consistent with what we’ve been seeing in the last few months with the labour market continuing to tighten,” said Peter Cardillo, chief market economist at Rockwell Global Capital in New York.

A small upward move could help calm volatile equity markets and ultimately start the country’s monetary policy down a path it will need to walk at some point before the next recession hits. Economic downturns are an unfortunate, inevitable part of any business cycle, and the Fed will want to have interest rates comfortably elevated by the time the domestic economy’s current upward trajectory starts to sag, whenever that may be. If the Fed doesn’t have the ability to lower interest rates at that time to jump start growth, there won’t be many monetary policy options to cushion the economy’s eventual fall. ET (1346 GMT), the Dow Jones industrial average was up 175.64 points, or 1.09%, at 16,224.77, the S&P 500 was up 23.4 points, or 1.24%, at 1,907.49 and the Nasdaq composite was up 67.42 points, or 1.49%, at 4,584.74.

The Nasdaq biotechnology index was up 3.8% as investors continued to seek bargains in the sector, which took a beating after Democratic presidential candidate Hillary Clinton criticized drug pricing last week. Our view would be that you get a modest bounceback, that you get a report that shows between 200,000 and 225,000 new jobs were added and that wages accelerated between August and September, and I think that would help calm some of the nerves that are out there around the spillover impact from China. Shares of Ralph Lauren were up 11.9% at $116.46 after the fashion powerhouse said its founder and CEO was stepping down and being replaced by the head of Gap’s Old Navy division. Western Digital jumped 11.9% to $77.70 after the data storage company said it would receive a $3.78 billion investment from Chinese infotech company Unisplendour. The series of indicators that Fed Chair Yellen has been watching – most of them have moved back towards the area of close to if not at full employment.

When Yellen spoke immediately after the FOMC’s September meeting in Washington, she highlighted a strong dollar, international weakness and especially China as potential hazards to America’s overall economic health. But if they get a nice acceleration in wages Friday, that would give them some reasonable confidence that they could hike rates by the end of the year. The minute they call a press conference for October, people will say, ‘O.K., they’re raising interest rates in October.’ They could get around that by just holding a press conference after every meeting.

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