European and Asian stock markets rose solidly Wednesday following a rally in Tokyo, as investors reacted to indications that US interest rates could climb as early as March.
The dollar extended gains as traders cheered upbeat remarks on the US economy by Federal Reserve boss Janet Yellen on Tuesday and her suggestion that US borrowing costs could rise next month.
Wall Street had Tuesday plowed to record highs for a fourth successive day as Yellen reinforced the view that the world’s top economy was in rude health, with the jobs market improving and inflation heading to the Fed’s 2 percent target.
Market “bullishness stems from hawkish testimony by Janet Yellen... giving a fillip to a key financial sector whose profitability benefits from higher interest rates,” said Accendo Markets analyst Mike van Dulken.
In company news Wednesday, European stock market operator Euronext said cost cutting enabled it to lift profits last year despite market volatility triggered by Brexit and the US elections.
Shares in troubled conglomerate Toshiba plunged almost 9 percent — extending Tuesday’s 8 percent decline — after warning it faced a 390 billion yen loss in the fiscal year to March.
The news prompted its chairman to resign while it also hinted at another accounting scandal following a profit-padding crisis in 2015.
Looking ahead to later in the day, the “focus will be very much on the US as we await Janet Yellen’s second day of testimony... and prepare for an onslaught of economic data including the latest retail sales and inflation numbers,” said Craig Erlam, senior market analyst at Oanda trading group.
“Inflation, or a lack thereof, has long been a problem for the Fed with policymakers clearly wanting to begin and then speed up the tightening process but it seems, gradually, pressures are building,” he added.
Yellen on Tuesday confirmed the next US rate rise could come at any time, which leaves open the possibility of a move at the Fed’s March 14-15 policy meeting.
Her remarks, in the first of two days of testimony to Congress, helped drag US stock markets out of a morning slumber and reinvigorated the greenback against most of its peers.
“The US dollar... got that boost from Yellen,” said Greg McKenna, chief market strategist at AxiTrader.
“She said rates need to rise. That is important because to wait is to risk having to overreact and then knock the economy and markets.”
The broad advance for stock markets extends a rally that began last week when US President Donald Trump promised details of “phenomenal” tax reforms, raising hopes he will honor other election promises of massive infrastructure spending and deregulation.
“In principle, the Trump rally continues,” said Toshihiko Matsuno, chief strategist at SMBC Friend Securities.
“Yellen seemed so positive” toward hiking interest rates, he told AFP.

Source: Arab News