Interest rate optimism lifts US dollar

Market and sector news

The Dow Jones Industrial Average, S&P 500 Index and the Nasdaq closed higher yesterday on the back of a Treasury yield rise and optimism on near term interest rate rises.

US shares are expected to open lower, ahead of a critical meeting of European finance ministers to discuss Greece's bailout program later today.

Brent crude stayed above $56 (£36) per barrel on Wednesday, and US crude rose briefly, as a smaller than expected supply signalled that the glut might be starting to abate. However, Reuters reported a warning from the International Energy Agency that global production would continue before investment cuts begin to significantly impact output.

Economic news

The benchmark US ten-year Treasury yield rose above two per cent on Tuesday, for the first time since January, as views firmed that the Fed might lift interest rates by mid 2015. Markets are waiting on the release of the monthly Federal Budget statement at 14:00 ET (19:00 GMT).

The dollar hit a fresh one-month high versus the yen on Wednesday, reaching an intra-day high of 119.67 yen, boosted by Treasury yield numbers. The dollar was also stronger against the euro, which continues to be subdued against the backdrop of uncertainty regarding Greece's debt crisis. As at 13:00 GMT, the dollar was trading slightly up against the pound at US$1.5298

Company news

Reporting season is well underway with several major stocks releasing financial results before market open. Time Warner reported better than expected quarterly profits, while total revenue was down one per cent to US$7.53 billion, slightly lower than analyst expectations of US$7.55 billion according to Thomson Reuters.

At AOL, quarterly revenue rose 4.6 per cent helped by stronger advertising sales, while earnings per share of 92 cents smashed analyst forecasts of 72 cents. However, total revenue was lower than expected at US$710.3 million versus a forecast consensus of US$723 million.

PepsiCo’s quarterly profit numbers also beat expectations, while net revenue for the fourth quarter fell around one per cent to US$19.95 billion, impacted by a stronger dollar. The company also announced an annual dividend increase of 7.3 per cent to US$2.81 per share, as well as a US$12 billion buy-back programme.