US open: Stocks gain as Yellen signals rate hike

US stocks rose on Friday as Federal Reserve chair Janet Yellen signalled the possibility of an interest rate hike at next month’s meeting.

At 1538 BST, the Dow Jones Industrial Average rose 0.54% to 18,547.23 points, the S&P 500 edged up 0.61% to 2,185.71 points and the Nasdaq climbed 0.70% to 5,248.87 points.

Speaking at the Jackson Hole conference, Yellen said the case for an increase in the federal funds rate has strengthened in recent months in light of a robust labour market and an upbeat outlook on economic growth and inflation.

Her remarks were seen to suggest the Fed may raise rates at the 20-21 September policy meeting, or at least in the coming months.

However, Yellen stressed: “Our decisions always depend on the degree to which incoming data continues to confirm the (Fed’s) outlook.”

Craig Erlam, senior market analyst at Oanda, said: “The pre-prepared text from Yellen’s speech at Jackson Hole today didn’t necessarily offer much in the way of surprises but it did confirm one thing, there is now a clear and public hawkish consensus building within the Fed and Chair Yellen is on board.”

The dollar weakened against most major currencies following Yellen’s remarks, down 0.20% against the pound and down 0.22% versus the yen, but up 0.03% against the euro.

Oil prices gained in response to the weaker dollar as it makes crude imports cheaper for holders of other currencies. Brent crude jumped 1.4% to $50.42 per barrel and West Texas Intermediate rose 1.6% to $48.11 per barrel

The two-year Treasury yield dropped by two basis points to 0.776%

Earlier, the second estimate of US economic growth in the second quarter was revised lower.

Gross domestic product expanded at an annualised 1.1% in the second quarter, the Commerce Department, slightly down from the initial estimate of 1.2%. but in line with analysts’ expectations.

Personal consumption in the US was revised to a 4.4% gain in the second quarter from a previous estimate of 4.2%. It marked the fastest rate of growth since the fourth quarter of 2014.

“Altogether, the second estimate of Q2 GDP does little to alter the view of economic activity in the second quarter. Personal consumption rebounded sharply in the quarter as household spending on durable goods reversed its weak first-quarter showing,” said Barclays Research analyst Michael Gapen.

“Business investment remains soft, with structures investment continuing to reflect the lagged effects of declines in energy prices, and residential investment looks to have taken a breather after very strong growth throughout 2015. “

The US trade deficit narrowed to a seasonally adjusted $59.3bn in July from $64.5bn in June, the Commerce Department said separately. Exports rose by $2.9bn during the month while imports shrank $2.4bn.

Another report showed US consumer sentiment eased in August. The University of Michigan’s final reading of the consumer sentiment index fell to 89.8 from 90.0 the month before and 91.9 in August last year. It was below the flash reading of 90.4.

In company news, Anheuser-Busch InBev NV gained even as it warned on Friday its beer merger with SABMiller could lead to thousands of job losses in the coming years.

Herbalife Ltd. slumped after reports billionaire investor Carl Icahn has recently been in talks to sell his stake in the nutritional-products company.

Elsewhere, software company Splunk, beauty products retailer Ulta Salon Cosmetics and video game retailer GameStop declined following disappointing earnings late on Thursday.