While you were sleeping: US rate hike rethink

Thursday 20th August 2015

Wall Street fell, while US Treasuries rose, after minutes from the July Federal Reserve meeting suggested US policy makers might not raise interest rates next month.

“Most [participants] judged that the conditions for policy firming had not yet been achieved, but they noted that conditions were approaching that point,” according to minutes from the Federal Open Market Committee’s July 28-29 meeting, released on Wednesday.

“Participants observed that the labour market had improved notably since early this year, but many saw scope for some further improvement,” the minutes showed.

To be sure, “it was also noted that a prompt start to normalisation would likely convey the Committee's confidence in prospects for the economy,” according to the minutes.

Most analysts interpreted the Fed’s comments as suggesting a September rate hike may be off the table.

“The Fed is backing off from September,” John Herrmann, director of US rate strategy at Mitsubishi UFJ Securities USA, told Bloomberg. “They are still saying they have not seen enough.”

September federal funds futures implied traders expect a 45 percent chance of the Fed raising rates in September, while likelihood of a December rate increase held steady at 73 percent according to CME Group's FedWatch program, Reuters reported.

Futures show traders see about a 38 percent chance the Fed will raise its benchmark rate at its September 16-17 meeting, down from about 50 percent earlier in the day, according to Bloomberg.

Not everyone agreed, however.

"Rate hike in Sept. Financial conditions not economic conditions a priority. That means they begin to normalise despite data," Bill Gross of Janus Capital Group said in a Tweet.

Wall Street held to earlier losses. In late trading in New York, the Dow Jones Industrial Average fell 0.8 percent, the Standard & Poor’s 500 Index weakened 0.4 percent, while the Nasdaq Composite Index shed 0.3 percent.

Declines in shares of Chevron and those of Exxon Mobil, down 2.5 percent and 1.6 percent respectively, led the Dow lower.

Oil dropped 4 percent after Energy Information Administration data showed a surprise gain in

US crude inventories, which rose by 2.6 million barrels to 456.21 million last week.

"The numbers were a total surprise with crude showing a build when the whole Street was forecasting a draw," Tariq Zahir, managing member at Tyche Capital Advisors in Laurel Hollow in New York, told Reuters.

US Treasuries gained, pushing yields on the benchmark 10-year note four basis points lower to 2.15 percent.

In Europe, the Stoxx 600 Index finished the day with a 1.8 percent slide from the previous close. France’s CAC 40 Index shed 1.8 percent, while the UK’s FTSE 100 Index dropped 1.9 percent, and Germany’s DAX Index sank 2.1 percent.

Shares of Glencore plunged 9.7 percent to a record low after the company reported a drop in profit, while shares of Carlsberg sank 9.2 percent after the company posted profit to failed to meet expectations.

BusinessDesk.co.nz

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