Yellen Offers Optimism on U.S. Growth Outlook, ECB Struggles

Nichole Harper
03 Dec, 2015
New York City

U.S. Federal Reserve Chair Janet Yellen offered positive economic assessment and highlighted stable employment and widening economic recovery. Across the Atlantic, the European Central Bank fell short of expected additional stimulus measures. Stocks in New York and the euro zone lacked momentum.

[R][12:15 PM New York City, New York – U.S. Federal Reserve Chair Janet Yellen offered positive economic assessment and highlighted stable employment and widening economic recovery. Across the Atlantic, the European Central Bank fell short of expected additional stimulus measures. Stocks in New York and the euro zone lacked momentum.[/R]

Stocks struggled in New York and U.S. Fed Reserve Chair Janet Yellen offered optimistic view on the health of the economy.

In a prepared statement to lawmakers, Yellen laid out the familiar case of stable employment and gradual economic recovery and he confidence that inflation will reach to the target laid out by the central bank over time.

Seasonally adjusted weekly jobless claims increased 9,000 to 269,000 from the previous week’s unrevised claims of 260,000, the U.S. Department of Labor said.

The preliminary insured unemployment rate in the week ending November 21 was 1.6% unchanged from the prior week''s unrevised rate.

New orders for manufactured goods in October jumped $6.8 billion or 1.5% to $473.9 billion, followed by 0.8% decrease in September.

Excluding transportation, new orders decreased -0.1%, the Department of Commerce reported.

On Wall Street, Tollbooth Strategy Index slipped 41.82 or 0.4% to 10,939.94.

S&P 500 index fell 6.18 or 0.3% to 2,073.26 and the Nasdaq Composite Index slid 10.45 or 0.2% to 5,113.88.

Crude oil in New York added 21 cents to $40.15 a barrel and gold gained $3.40 to $1,057.10 an ounce.

U.S. Movers

Medtronic Plc ((MDT)) rose 1.9% or $1.44 to $77.61 after the medical technology and services provider reported revenues in the second-quarter ending in October jumped 6% from a year ago to $7.1 billion.

Net income in the quarter tumbled 37.2% to $520 million or 36 cents per diluted share compared to $828 million or 83 cents per share from the same quarter last year.

For the second half of fiscal 2016, the company forecasted revenue growth to be in the upper-half of its mid-single digit and diluted non-GAAP earnings per share in the range of $4.33 to $4.40.

Sears Holdings Corp ((SHLD)) decreased 1.7% or 37 cents to $20.16 after the department stores operator said revenues in the third-quarter ending in October plummeted 19.4% from a year ago to $5.8 billion.

Kmart comparable store sales in the quarter declined 7.5% and Sears domestic comparable store sales in the quarter plunged 9.6%.

Net loss in the quarter narrowed to $454 million or $4.26 per diluted share compared to $548 million or $5.15 per share from the same quarter last year.

European Markets

European bourses abruptly changed direction and headed south in the afternoon, after the European Central Bank announced its decision on economic stimulus, which failed to meet the high expectations of investors.

In a highly anticipated announcement, the ECB said it cuts the overnight deposit rate deeper into negative zone to -0.3% from -0.2%, in an effort to stimulate bank lending.

The central bank is also extending its monthly €60 billion bond-buying program to at least March 2017, or by a minimum of six months.

ECB president Mario Draghi said the bond-buying stimulus, or the quantitative easing program, is successful, but an extension is necessary to deal with the prolonged low inflation.

The inflation is running at 0.1%, significantly below the 2% target set by the central bank,

The main interest rate remains unchanged at a record low of 0.05% and the central bank just lowered rate deeper in negative territory, meaning charging more to banks for parking funds with the ECB.

Following the announcement, the euro surged against the dollar, rising more than two cents to $1.08.

In London trading, FTSE 100 index fell 57.77 or 0.9% to 6,363.16 and in Frankfurt the DAX index lost 286.10, or 2.56%, to 10,903.92.

In Paris, CAC 40 index slid 98.42 or 2.01% to 4,807.34.

Alcatel Lucent SA fell 2.08% to €3.78 after the shareholders of Nokia approved the acquisition of struggling Alcatel Lucent for €15.6 billion.

The deal is expected to be completed in the first quarter of 2016, and after the transaction Nokia will become a market leader in network design and automation.

In Helsinki, shares of Nokia jumped 2.41% on the news.

Royal Dutch Shell Plc increased 0.9% to 1,678 pence after the U.K. and Holland based oil and gas producer received approval from Australia''s Foreign Investment Review Board for the company''s proposed $70 billion for acquisition of BG Group Plc.

Asian Markets

The Nikkei average remained flat ahead of rate decisions in the euro zone and the U.S. Fast Retailing, the operator of Uniqlo apparel said sales in November declined 8.9%.

Mitsubishi Heavy Industries forecasts operating profit growth of 150% for its aviation and transport systems business.

In Tokyo trading, Nikkei 225 average closed flat as investor took a conservative approach amid declining oil prices and tuned cautious ahead of rate decision in the euro zone and the U.S.

The prospect for higher U.S. interest rates after the Federal Reserve December meeting is making the U.S. market more attractive for international investors and is driving money away from Asia.

Europe is also on the radar ahead of the European Central Bank meeting today that will decide on additional monetary stimulus. The central bank is expected to further reduce deposit rate and extend its asset-buying program.

In Tokyo trading, Fast Retailing, the operator of Uniqlo apparel chain, weighed on the market after reporting disappointing November sales.

On the other hand, Mitsubishi Heavy Industries lifted its profit forecast and expects operating profit growth of 150% for its aviation and transport systems business.

Nichi-iko Pharmaceutical sold its 12.6% stake in Korea-based rival Binex Co., Ltd for about 6.20 billion yen.

The Nikkei 225 Stock Average edged up 1.77 to 19,939.90 and the broader Topix index added 0.68 to 1,602.94.

The yen weakened to 123.43 against a dollar.

Stocks on Dalal Street traded lower and the benchmark Sensex index dropped nearly 1%, the largest single-day decline in nearly two weeks.

Stocks in Mumbai and in Asia were on the defensive after the U.S. Federal Reserve Chair Janet Yellen focused on the rising interest rate in a speech.

U.S. interest rates have been steady or in decline for more than a decade and expectations are running high that the central bank will raise rate at the next policy meeting on December 8.

The hot money flow has been leaving Asian markets on the expectations of the higher rates in the U.S. And, foreign investors have been net sellers of stocks in Mumbai.

Foreign investors, the holders of nearly 24% of all outstanding stocks in Mumbai, sold ₹7,000 crore or $1 billion of stocks in November.

The Reserve Bank of India said today it plans to buy up to ₹10,000 crore worth of government bonds through an auction by December 7.

Rupee fell 6 paisa to 66.65 against one U.S. dollar.

The Sensex Index dropped 231.23 or 0.9% to close at 25,886.62. The CNX Nifty slipped 67.20 or 0.9% to 7,864.15.

Wipro agreed to acquire Germany- based cellent AG for €74 million.

Aditya Birla Nuvo plans to sell 23% stake in life insurance to Canada-based Sun Life Financial for $252 million.