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MARKET SAVVY

What Now for Markets?

May 19, 1999

Federal Reserve policymakers on Tuesday said they adopted a "tilt" toward the possibility of raising short-term interest rates in the months ahead, depending on economic strength and the pace of inflation. What will that mean for global markets? Here are some things to watch:

Bonds: Will Long-Term Yields Fall?

Yields on 30-year Treasury bonds tend to reflect inflation fears more than the possibility of a modest increase in short-term rates. If the 30-year T-bond holds steady or declines, it could signal waning inflation fears--and lessen the need for a Fed rate hike. 30-year T-bond yield, weekly closes and latest:

Tuesday: 5.88%

U.S. Stocks: Can the Rally Keep Broadening?

Investors' interest in smaller stocks has surged recently, partly reflecting optimism about the economy. So if the market rally continues to broaden, it could be a bullish sign for the economy--but that might also raise the odds of a Fed rate hike. Number of stocks rising versus number falling on Nasdaq each week:

Tuesday: 176.06

Foreign Stocks: Will the Pace Slow?

Many overseas markets have raced ahead this year on expectations of a global economic recovery. Those markets now face a key test: whether improving fundamentals in Asia and elsewhere can overcome the negative effects of a possible Fed rate hike.

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Market/ Tuesday Percentage change index close Year-to-date Last 5 days Brazil/Bovespa 12,267.84 +80.8% +1.0% Mexico/IPC 5,856.15 +47.9 -0.4 Thailand/SET 481.55 +35.3 -1.0 South Korea/composite 726.00 +29.1 -4.7 Hong Kong/Hang Seng 12,627.10 +25.7 -3.0 Japan/Nikkei-225 16,378.62 +17.8 -4.0 Britain/FTSE-100 6,206.40 +5.5 -2.2 Germany/DAX 5,154.94 +3.1 -1.7 U.S./S&P 500 1,333.32 +8.5 -2.3

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Source: Bloomberg News, Times research

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