Europe close: Stocks saved by the bell after Yellen speech
By Alexander Bueso
Date: Friday 26 Aug 2016
(ShareCast News) - European stocks finished higher following the much-awaited speech from Fed chief Janet Yellen, amid a flurry of volatility in all asset classes as traders and investors digested her remarks.
The benchmark Stoxx Europe 600 index gained 1.70 points or 0.50% to end the day at 343.72, just before short-term US interest rates turned around and rose, dragging the main Wall Street stock indices lower.
France's CAC 40 rose 0.80% or 35.26 points to 4,441.87 while Germany's DAX finished 0.55% or 58.18 points higher at 10,587.77.
"In light of the continued solid performance of the labor market and our outlook for economic activity and inflation, I believe the case for an increase in the federal funds rate has strengthened in recent months," she said in a prepared speech.
To take note of, following her speech her number two at the Fed, vice-chair Stanley Fischer, told CNBC her comments were consistent with a possible September hike and two rate hikes before 2016 was out.
"But these are not things we know until we see the data [...] because the picture is a very complex one," he added.
The elections could influence things happening in the economy and there was a case for fiscal policy and infrastructure investment in order to boost productivity, but those decisions were the remit of the US Congress and the President, he said.
As of 1740BST Fed funds futures were assigning a 60.3% probability to a 25 basis point rate hike on 14 December, when the US central bank was next scheduled to meet.
Front month Brent futures edged lower by 0.34% to $49.50 per barrel on the ICE. West Texas Intermediate was up 0.063% at $47.36 a barrel.
On the corporate front, Gemalto racked up healthy gains following the release of its second-quarter numbers, while Volkswagen advanced on news of a diesel-related settlement with US dealers.
BAE Systems was up after Berenberg upgraded the stock to 'buy' from 'hold', saying it expects a material order book uplift.
Restaurant Group was a high riser after saying it swung to a pre-tax loss in the first half on the back of restructuring costs and announcing the closure of 33 outlets.
Media group Vivendi was in the red after posting a drop in second-quarter adjusted net income and saying it will cut €300m in costs from its pay-TV unit.
Money supply growth in the euro area slowed to its lowest pace in 19 months in July, reflecting slower economic activity, leaving economists somewhat divided on the outlook for trends in lending.
So-called "narrow" money supply (M1) growth slowed from the 8.7% year-on-year pace observed in June to 8.4% in July, according to the European Central Bank.
Capital Economics's Jack Allen highlighted the still "large" gap between lending in the likes of France and Germany and the Eurozone periphery, with lending in Italy shrinking at an accelerated rate in Italy over recent months.
Banking risks in peripheral economies, especially Italy, remained "large", Allen argued, adding that those risks would rise if economic growth in the currency-bloc slowed.
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