Wall St lifts as banks rally

The ASX is set for a positive open as investors hope for a boost in earnings from the US financial sector.

US stocks pushed higher as investors continued to digest hawkish comments from the Federal Reserve last week. Picture: Spencer Platt/Getty Images/AFP.

US stocks rebounded overnight, led by a rally in financial shares.

Earlier, European shares closed lower as traders felt uncertain about the Federal Reserve’s rate hike plans, although London was closed for a holiday.

The Australian share market is set to follow the upbeat Wall Street leads, with ASX futures 16 points higher at 6.25am (AEST).

Major US stock indexes had their biggest weekly declines since Brexit after Federal Reserve Chair Janet Yellen said Friday that the case for a rate rise had improved.

The prospect of higher rates tends to strengthen the dollar and weaken stock markets, which have been boosted by years of loose monetary policy. But some investors were sceptical that an increase would come soon, or that it would be big enough to shake the long-running rally.

“The bull market ends on a recession, it doesn’t end on a rate hike,” said Michael Antonelli, equity sales trader at Robert W. Baird.

The Dow Jones Industrial Average rose 108 points, or 0.6 per cent, to 18503. The S&P 500 gained 0.5 per cent and the Nasdaq Composite added 0.3 per cent.

Fed-fund futures, used by investors to bet on central-bank policy, recently suggested a 21 per cent probability of a rate rise in September, compared with 33 per cent on Friday and 21 per cent Thursday, according to data from CME Group. The odds for a rate rise by the end of year were roughly 52 per cent.

Financial shares in the S&P 500 rose 1 per cent. Higher interest rates tend to widen the difference between what banks charge on loans and pay on deposits, which should boost earnings.

The sector has lagged behind the broader index this year as investors curbed their expectations for rising rates. Financials are up almost 2 per cent so far this year, compared with the S&P 500’s gain of nearly 7 per cent.

Shares of Wells Fargo rose 2.2 per cent Monday. J.P. Morgan Chase & Co. added 1.1 per cent. The SPDR S&P Regional Banking exchange-traded fund rose 0.8 per cent.

Michael Ball, portfolio manager with Weatherstone Capital Management, said he was considering buying shares of the ETF but was waiting for a more definitive sign on interest rates. November’s presidential election and the Fed’s past hesitation make him sceptical an increase will come before December, he said.

“They tend to err on the side of being cautious,” he added. “So even if you have a good jobs report but something weak internationally, it may give them an excuse to say they’re going to hold off.”

The WSJ Dollar Index, which measures the dollar against a basket of 16 currencies, rose 0.1 per cent, building on its biggest weekly rise since May.

Prices for dollar-denominated commodities dropped as the dollar strengthened. US crude oil declined 1.4 per cent to $US46.98 a barrel.

The yield on the 10-year Treasury note fell to 1.566 per cent from 1.631 per cent on Friday. Yields move inversely to prices.

US economic data now faces heavy scrutiny ahead of the next FOMC meeting on Sept. 20-21. Fed officials are watching data like inflation and hiring as they consider the path of interest rates. The monthly jobs report is due Friday.

Consumer spending rose for the fourth straight month in July, the Commerce Department said Monday. Meanwhile, the personal-consumption expenditures price index, the Fed’s preferred inflation measure, was flat in July from the prior month.

In the short term, “strong payrolls would be very bad news for equities, “ said Florian Ielpo at Swiss fund manager Unigestion. Solid data would strengthen the case for a rate rise in September and call into question a recent rally in emerging markets, which hold large quantities of dollar-denominated debt, he said.

Still, longer term, he said, “when a central bank decides to increase rates, it means the country and companies are doing very well.”

The Stoxx Europe 600 inched down 0.2 per cent. Markets in the UK were closed for a holiday.

Japan’s Nikkei Stock Average rose 2.3 per cent, its largest jump since Aug. 8, as the yen weakened. The dollar was recently up 0.1 per cent against the yen at Yen101.974.

Hong Kong’s Hang Seng fell 0.4 per cent and Australia’s S&P ASX 200 lost 0.8 per cent. The Shanghai Composite Index was flat.

Dow Jones