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While you were sleeping: Second-guessing the Fed

Friday 16th June 2017

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Wall Street and US Treasuries retreated a day after the Federal Reserve announced an increase in interest rates as investors second-guessed the central bank’s assessment of the outlook for inflation.

“The fact that the Fed is tightening against the backdrop of slowing inflation implies that the market continues to price in policy error,” Jabaz Mathai, head of US rates strategy at Citigroup, said in a note, Bloomberg reported.

US Treasuries weakened, pushing yields on the benchmark 10-year note three basis points higher to 2.16 percent.

In 2.59pm trading in New York, the Dow Jones Industrial Average fell 0.1 percent, while the Nasdaq Composite Index slid 0.6 percent. In 2.44pm trading, the Standard & Poor’s 500 Index shed 0.3 percent.

The Dow moved lower as declines in shares of Nike and those of Goldman Sachs, recently down 3.1 percent and 1.5 percent respectively, outweighed gains in shares of Caterpillar and those of Boeing, recently each up 1.6 percent.

"You seem to be losing some momentum in the big growth names that have led the market so far this year," Walter Todd, chief investment officer at Greenwood Capital Associates in Greenwood, South Carolina, told Reuters. "At the same time, the economic data has just not been good enough to get investors excited about buying into other areas of the market."

Tech stocks took another hit. Shares of Snap fell as low as US$17, the same price as in its initial public offering in March. The stock traded 3.6 percent weaker at US$17.24 as of 3.22pm in New York.

Shares of Kroger sank, trading 17.5 percent weaker as of 1.15pm in New York, after the biggest US supermarket operator posted a drop in quarterly same-store sales and downgraded its full-year earnings forecast amid a decline in food prices.

“We expect the pricing environment to get more competitive as value discounters like Aldi expand, players like Lidl enter the market and Wal-Mart flexes its pricing muscle to gain market share,” Mickey Chadha, an analyst at Moody’s Investor Service, told Bloomberg.

Shares of rival Whole Foods also dropped, trading 6.3 percent weaker.

"We will not lose on price, CEO Rodney McMullen said in a statement. "We are driving our strategy of lowering costs to reinvest in ways that provide the right value to our customers.”

Switzerland's Nestlé said it will explore strategic options for its US confectionery business, including a potential sale. The review is expected to be completed by the end of this year, the company said in a statement.

The review doesn't include Toll House baking products, as that brand remains strategic, Nestle said.

In Europe, the Stoxx 600 Index ended the day with a 0.4 percent fall from the previous close. France’s CAC40 Index fell 0.5 percent, while the UK’s FTSE 100 Index declined 0.7 percent, and Germany’s DAX Index retreated 0.9 percent.


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