Stocks rise after Yellen rate comments, G7 tax plan
Stock markets largely rose and the dollar fell Monday after US Treasury Secretary Janet Yellen downplayed fears over the prospect of higher interest rates triggered by a spike in inflation.
Investors weighed also moves over the weekend by the G7 group of wealthy nations towards an eventual global minimum corporate tax rate aimed firmly at tech giants seen as not paying enough.
Elsewhere Monday, US oil prices briefly topped $70 per barrel for the first time in 2.5 years as the pandemic-hit global economy pushes on with its recovery.
“Inflation remains squarely in focus and the largest potential source of investors’ angst and market volatility this week,” noted Neil Wilson, chief market analyst at Markets.com.
Yellen told Bloomberg News that US President Joe Biden should push ahead with his $4.0-trillion recovery plan for the world’s top economy even if it triggers high inflation that leads to interest rate rises.
While optimism about the global economic recovery and vaccine roll-outs have spurred markets, trading floors remain worried that the rebound will cause strong price rises and in turn force central banks to hike borrowing costs.
Yellen said any inflation spike in reaction to Biden’s massive plan to revitalise the US economy would be transitory and that higher interest rates would actually be positive.
“If we ended up with a slightly higher interest rate environment, it would actually be a plus for society’s point of view and the Fed’s point of view,” the former Federal Reserve chair said in an interview Sunday with Bloomberg.
“We’ve been fighting inflation that’s too low and interest rates that are too low now for a decade,” she said, adding she wanted them back to a normal level.
While higher rates raise the cost of borrowing for governments, businesses and individuals, they boost the profits of banks and other lenders and increase the value of people’s deposited savings.
Yellen was speaking after returning from a meeting of G7 finance ministers in London which endorsed a global minimum corporate tax rate of at least 15 percent, rallying behind a US-backed plan targeting tech giants and other multinationals.
Wall Street meanwhile reopens Monday after last week’s tepid US jobs report eased concerns that the expanding economy would force the Fed to pull back on stimulus.
Traders have shrugged off lower-than-expected Chinese trade growth figures for May, as imports still expanded at the fastest pace in more than a decade, up 51 percent year-on-year.
Exports expanded by 28 percent.
“To be honest, that is a cracking number by anybody’s standard and show that global demand remains robust,” said OANDA’s Jeffrey Halley.
Imports and exports to China’s major trade partners including Southeast Asia’s ASEAN bloc, the European Union and the United States have risen in the first five months this year, Chinese customs authorities said.
– Key figures around 1045 GMT –
London – FTSE 100: UP 0.3 percent at 7,089.79 points
Frankfurt – DAX 30: UP 0.2 percent at 15,726.73
Paris – CAC 40: UP 0.3 percent at 6,535.02
EURO STOXX 50: UP 0.3 percent at 4,099.88
Tokyo – Nikkei 225: UP 0.3 percent at 29,019.24 (close)
Hong Kong – Hang Seng Index: DOWN 0.5 percent at 28,787.28
Shanghai – Composite: UP 0.2 percent at 3,599.54 (close)
New York – Dow: UP 0.5 percent at 34,756.39 (close)
Euro/dollar: UP at $1.2153 from $1.2129 at 2130 GMT Friday
Pound/dollar: UP at $1.4136 from $1.4104
Euro/pound: FLAT at 85.96 pence
Dollar/yen: DOWN at 109.44 yen from 110.30 yen
Brent North Sea crude: DOWN 0.6 percent at $71.46 per barrel
West Texas Intermediate: DOWN 0.6 percent at $69.24 per barrel
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