August 17, 2016

IFC Markets, US stocks pull back on hawkish Fed comments

New York Fed President William Dudley hinted at possibility of a September rate hike.

This article is originally referred from IFC Markets Market Overview.

US stocks pulled back from record highs on Tuesday as New York Fed President William Dudley hinted at possibility of a September rate hike. However the dollar weakened as data showed inflation remained tepid and San Francisco Fed President John Williams said the new environment of naturally low interest rates could justify keeping rates low for an extended period.

The live dollar index data show the ICE US Dollar index, a measure of the dollar’s strength against a basket of six rival currencies, fell 0.85% to 94.764. The Dow Jones industrial average closed down 0.5% at 18552.02 led by a 1.6% loss in both Johnson & Johnson and Verizon shares. The S&P 500 fell 0.6% settling at 2178.15 as only the energy sector ended in positive territory gaining 0.2% on the back of higher oil prices. The Nasdaq index dropped 0.7% to 5227.11 ending a streak of three straight sessions of record highs.

The prospect of a possible rate hike weighed on investor confidence which got a boost recently from better than expected corporate reports. Based on better than expected earnings reports, Wall Street has revised upward revenue forecasts, estimating the third-quarter revenue for Dow components is expected to rise 0.8% for the third quarter and 3.2% for the fourth quarter.

Revised estimates supported rising stock prices. Economic data were mixed: the US consumer-price index remained unchanged in July with headline inflation rising 0.8% after 1% gain in June, which strengthened the case the Federal Reserve will likely refrain from raising interest rates in near term with inflation well below the target 2%. At the same time housing starts at 2.1% over month, helped by rebound in multifamily homes, rose to their second-highest rate since the recession.

And the 0.7% growth in industrial production in July was the biggest one-month gain in 20 months. Investor will focus on minutes of recent Federal Reserve policy meeting due today for clues whether policy makers will raise rates in foreseeable future. Today at 13:00 CET Mortgage Applications will be released in America. At 19:00 CET Federal Reserve Bank of St. Louis President James Bullard speaks on the US economy in St. Louis. And at 20:00 CET Minutes from July 26-27 FOMC meeting will be released.

European stocks retreated on Tuesday as auto maker stocks fell with only commodity shares ending in positive territory. The euro rose and British Pound strengthened against the dollar after UK inflation came in stronger than expected.

The Stoxx Europe 600 index fell 0.8%, third straight decline. Shares in copper producer Antofagasta PLC rallied 8.7% and BHP Billiton added 0.7% as miners posted better than expected results despite a decline in Antofagasta’s first-half net profit to $88.1 million and BHP’ worst-ever $6.39 billion loss while it cut dividends by 77%. Volkswagen shares fell 1.7% on report US Justice Department investigators have found evidence of criminal wrongdoing in the car maker’s diesel-emissions cheating.

Renault shares dropped 3.2% and Peugeot lost 2.2%. Germany’s DAX 30 lost 0.6% settling at 10676.65 despite improved ZEW survey results: ZEW economic sentiment index rose to 0.5 in August, compared with minus 6.8 the previous month. France’s CAC 40 fell 0.8% and UK’s FTSE 100 ended 0.7% lower. Today At 10:30 CET job market data will be released in UK. The tentative outlook is positive. No important economic data are expected in euro-zone today.

Asian stocks are mixed today with Hong Kong’s Hang Seng Index down 0.5% and Shanghai Composite Index essentially unchanged after pairing initial losses following the news authorities approved the launch of a long-awaited scheme to allow stock trading between Shenzhen and Hong Kong and lifted quota limits for the existing Shanghai-Hong Kong Stock Connect. Australia’s S&P ASX 200 is up 0.04%. Nikkei advanced 0.9% today as yen weakened. Exporters outperformed: Toyota gained 2.23%, Honda jumped 3.38%.

Oil futures prices are pulling back today after closing at more than one-month high the previous day on hopes producers will agree to freeze output at OPEC September meeting. October Brent crude climbed 1.8% to $49.23 a barrel on London’s ICE Futures exchange on Tuesday. Late Tuesday report by the American Petroleum Institute showed a 1 million barrels unexpected draw in US crude stockpiles but a growing stock of refined oil products as the 2.2 million rise in gasoline stockpiles was surprisingly high. Traders will be watching closely the Energy Information Administration release of US Crude Oil Inventories at 16:30 CET today.

Gold is edging lower today as investors await the Fed’s July policy meeting minutes later in the session. The safe haven metal rose 0.5% on Tuesday as dollar weakened, making the precious metal cheaper for holders of other currencies.

Original Source: IFC Markets Market Overview

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