US Dollar Up, Stocks Down

US stocks slid on August 30 and the dollar value went up on the anticipation that interest rates will be pushed higher by the Federal Reserve. There was flat trading before the publication of the monthly jobs  report on September 2. Janet Yellen, the chairwoman of the Federal Reserve kept the possibility open for a rise in rates which could be as soon as September.


According to Brian Jacobsen of Wells Fargo Funds Management, the stock market went down due to the strong dollar and greater expectations of a hike in rates. The DJIA or Dow Jones Industrial Average drpped 0.3 percent or 48.63 points to touch 18454.30. There was a decline of 0.2 percent or 4.26 points by S&P 500 to 2176.12. The utilities shares pulled it down. The latter has largely benefited from the expectations that the rates of interest will continue to low. The Nasdaq Composite had also dropped 0.2 percent or 9.34 points to 5222.99. Investors who seek higher returns prefer a financial instrument that provides higher interest rates. A stronger dollar, however, can erode earnings of the American corporations which sell goods overseas.

The expectation of US interest rates continuing to remain low for an extended time have assisted a riskier assets rally during the preceding months. Caught in the upswing were the emerging market and global stocks as well. A few traders, however, continue to argue that investors are reassured of signs that show the US economy to be strong. This is important as the rise in rates are anticipated to be gradual.

Different markets

Kully Samra of Charles Schwab expects that the Fed rate will increase before 2016 ends- but it may not happen in September. The managing director of the company points to the apparent reluctance of the Federal Reserve to increase the rates in the earlier part of 2016 at the time of market doldrums. Among shares, the consumer market ones suffered the steepest fall. The only gainers were the financials in S&P 500. It went up by 0.8 percent on August 30.

Banking shares lifted Stoxx Europe 600 up by 0.5 percent. There was a 1.8 percent rise in banking subindex, after remaining down by 22 percent in 2016. Lenders in Europe suffered from many factors in 2016- from bad loans to negative interest rates prevalent in the banking system of Italy. Asian stocks, however, went up on August 30. Hang Seng Index of Hong Kong climbed 0.9 percent.

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