London stocks closed higher on Friday as traders weighed remarks from Federal Reserve chair Janet Yellen 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 for economic growth and inflation.
However, she stressed that policy decisions depend on how incoming economic data affects the Fed’s outlook.
Her remarks were seen to suggest that while an interest rate hike is a possibility at the 20-21 September policy meeting, or at least in coming months, it all depends on the strength of economic data.
“Even if September is now a more likely possibility for a move, the presence of non-farm payrolls on the calendar for next week means that the jury is still out for now,” said IG chief market analyst Chris Beauchamp.
The dollar initially dropped against most major currencies following Yellen’s remarks, but picked up towards the close.
Equally, oil prices jumped when the dollar weakened, with Brent rising above the $50 a barrel mark, but started to erase gains once the dollar regained ground. A weak dollar makes crude imports cheaper for holders of other currencies, and vice versa.
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.
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.
Closer to home, second quarter UK economic growth accelerated in line with expectations.
The Office for National Statistics confirmed UK gross domestic product grew 0.6% on the quarter in the second quarter, up from 0.4% in the first three months of the year.
On the year, growth was confirmed at 2.2%, compared to 2% in the first quarter.
In Asia, Japan’s core consumer price index, which excludes food and energy prices, fell 0.5% year-on-year in July compared to a 0.4% decline in June. Analysts had expected no change.
The headline CPI dropped an annualised 0.4% in July, the same rate of decline as the previous month and in line with analysts’ estimates.
Economists said the weak inflation data is likely to add pressure on the Bank of Japan for further stimulus measures.
“The monetary game in Japan has become very challenging given that the BoJ has gradually lost credibility and support from the market. It is time for the BoJ to surprise the insatiable market, yet Mr. Kuroda is running out of resources,” said Ipek Ozkardskaya, senior market analyst at London Capital Group.