Stocks, dollar rebound but Yellen rattles markets

Fri Oct 14, 2016 5:02pm EDT
 
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By Herbert Lash

NEW YORK (Reuters) - Global stocks and the dollar rebounded on Friday, buoyed at first by U.S. and Chinese data, but Federal Reserve Chair Janet Yellen later rattled investors when she said aggressive steps may be needed to address an economy whose potential is slipping.

The dollar posted its largest weekly rise in more than seven months, with rebounding U.S. retail sales and a rise in producer prices last month indicating the economy had regained momentum in the third quarter after a lackluster first-half.

Stocks in Europe rose more than 1 percent and an index of global equities gained. But stocks on Wall Street pared gains to close just above break-even, while yields on longer-dated U.S. Treasuries ticked up, with the benchmark 10-year note edging above 1.8 percent.

Yellen, who posed her comments in Boston as questions that need more research, also suggested the U.S. central bank may allow inflation to exceed its 2 percent target.

Yellen's remarks suggest she embraces the thinking of former U.S. Treasury Secretary Larry Summers who has said secular stagnation, or a lack of demand, is crimping global growth, said Jeffrey Gundlach, chief executive of DoubleLine Capital.

"I didn't hear, 'We are going to tighten in December,'" Gundlach told Reuters.

Peter Kenny, senior market strategist at Global Markets Advisory Group in New York, said Yellen has kept everyone guessing as to when the next rate hike will occur, which has led to an inconsistent and trendless trading pattern in equities.

"If the markets have a fit, they're not going to hike. If the markets are going to have smooth sailing until December, 'yes,' we'll hike," said Axel Merk, president and chief investment officer of Merk Investments in Palo Alto, California.   Continued...

 
An investor sits in front of an electronic board showing stock information at a brokerage house in Nanjing, Jiangsu province, China, September 27, 2016. REUTERS/Stringer