Wall St weakens as US dollar rises

The Australian share market is set to follow US stocks into the red, while the British pound hit a three-decade low.

US stocks opened little changed. Picture: AP Photo/Mark Lennihan.

US stocks, bonds and gold prices fell, while the dollar rose as investors pulled back from some of this year’s most popular trades.

Across the Atlantic, the British pound hit a three-decade low as traders worried about the looming Brexit, with the weak currency sending stocks soaring in London.

The Australian share market is set for a soft open, with ASX futures down 31 points at 7.20am (AEDT).

Many of Tuesday’s moves were a reversal of positions that were built up as the Federal Reserve put off raising interest rates. But many investors expect the central bank will act by the end of the year.

The Dow Jones Industrial Average flipped between gains and losses in early trading and closed down 85 points, or 0.5 per cent, at 18168. The S&P 500 fell 0.5 per cent and the Nasdaq Composite slipped 0.2 per cent.

“The feeling in the overall market is that the Fed will raise rates sooner rather than later,” said Ted Weisberg, a trader at Seaport Securities. “Higher rates are not going to be good for stocks, but there are sectors that will benefit and sectors that will be hurt.”

Shares of utilities companies continued their recent decline, falling 2.2 per cent in the S&P 500. Income-seeking investors have favoured such dividend-paying stocks amid ultralow rates around the world, helping utilities become one of the best-performing sectors of the broader index this year.

Apple, Goldman Sachs Group and J.P. Morgan Chase & Co. were among the few gainers in the Dow industrials. Technology and financial companies rebounded in the third quarter. Higher rates are good for banks because they tend to widen the gap between what banks charge on loans and what they pay for deposits.

US government bonds fell, with the yield on the 10-year US Treasury note rising to 1.683 per cent compared with 1.624 per cent on Monday.

The WSJ Dollar Index, which measures the US currency against a basket of others, gained 0.6 per cent.

Gold for October delivery slid 3.3 per cent to $US1,266.30 an ounce — the metal’s biggest drop since 2013. Higher rates and a strong dollar tend to weigh on gold, which is up more than 19 per cent so far this year.

“If they’re doing a rate hike in December, the Fed should take this week as the opportunity to meaningfully lay down the groundwork for that, so the market can completely digest the information,” said Scott Wren, senior global equity strategist at Wells Fargo.

Richmond Fed President Jeffrey Lacker said Tuesday that the central bank should pre-emptively raise rates to stave off accelerating inflation and the risk of having to tighten policy abruptly. Mr Lacker isn’t a voting member of the rate-setting Federal Open Market Committee this year.

His statements follow a rebound in US manufacturing data on Monday and comments from Federal Reserve Bank of Cleveland President Loretta Mester, who reiterated her call for higher US interest rates.

Ms Mester was one of three officials who cast dissenting votes at the September meeting, when the Fed left rates unchanged.

Investors also were beginning to look ahead to Friday’s US jobs report and the third-quarter earnings season.

Recent reporting seasons have disappointed, though many analysts expect the picture to improve as the worst news from the energy sector fades.

“Earnings could skyrocket toward zero by the end of 2016, which would be something of an improvement,” said Stephen Wood, strategist at Russell Investments.

London shares surged as the British pound slumped to a more than three-decade low. A weaker pound tends to benefit shares of British exporters.

The latest pressure on the British currency, which is down around 14 per cent against the dollar this year, came after UK Prime Minister Theresa May on Sunday set a March date to begin the process of leaving the European Union and suggested she would prioritise controlling immigration over maintaining full access to the country’s largest trading partner.

London’s FTSE 100 index rose 1.3 per cent to 7074.34 — just below its record close of 7103.98 hit April 27, 2015.

About 75 per cent of earnings from FTSE 100 companies come from outside the UK, according to Nick Peters, portfolio manager at Fidelity International.

“The boost to the FTSE 100 has come about because investors believe the UK economy is in a worse place,” he said.

The British currency had been trading in a relatively tight range for most of the summer after an initial drop following the UK referendum, supported by upbeat surveys on the economy in the immediate aftermath of the vote.

But many analysts said the pound now has plenty of room to fall further. The Bank of England is expected to ease policy again if needed, while ongoing political uncertainty around the Brexit negotiations and a record current-account deficit will likely add to the pressure, strategists said.

“We still see more weakness ahead,” said Allan von Mehren, chief analyst at Danske Bank. “There’s a bit of a battle coming between the UK and the EU, and I think that will create uncertainty that will weigh on the pound.”

Asian markets mostly advanced, with Japan’s Nikkei Stock Average adding 0.8 per cent as the yen weakened against the dollar. Markets in China were closed for a weeklong holiday.

Dow Jones