Evidence of Europe’s weak economic backdrop, which has led the European Central Bank (ECB) to hold interest rates at record lows and keep open the option for more monetary stimulus, was provided by Italy on Tuesday, as the country’s economy minister warned Italy would cut its growth estimates.
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Brainard said she wanted to see a stronger trend in US consumer spending and evidence of rising inflation before the Fed raises rates, and that the United States still looked vulnerable to economic weakness overseas.
USA stocks closed near intraday highs on Monday after comments from Federal Reserve Gov. Lael Brainard calmed market fears that the central bank will raise interest rates soon.
South Korea’s Kospi .KS11 rose 0.5 percent and Australian stocks .AXJO advanced 0.1 percent. In Hong Kong the Hang Seng shed 3.4 percent.
Federal Reserve governor Lael Brainard called for “prudence” in the timing of the removal of policy accommodation in what was the last Fed comment ahead of the quiet period into next week’s FOMC meeting.
Brainard highlighted reasons to raise rates with caution: US inflation has been persistently below the target of 2 percent; labor market slack has been greater than anticipated; financial transmission from foreign market is strong and poses a risk; and the ability of monetary policy to respond to shocks is asymmetric. “All the talk about a possible rate hike in September turned out to be noise”, said Koichi Yoshikawa, executive director of finance at Standard Chartered Bank’s Tokyo branch.
All 10 major S&P 500 sectors were lower, with the energy index’s 1.56 percent fall leading the decliners. The dollar fell to 101.98 yen from 102.69 yen late Friday.
In the global bond market, the recent sharp rise in yields was halted for now after Brainard’s comments.
European markets were up in afternoon as jitters over US monetary policy eased.
Oil prices were down more than 1 per cent after a report from the International Energy Agency added to concerns about global oversupply.
Its 10-year Japanese counterpart yielded minus 0.020%, nudged away from a six-month peak of minus 0.010% reached recently. Crude oil prices also dipped as traders sold off the prior day’s gains. Brent crude LCOc1 , the global benchmark, was down 80 cents a barrel at $47.51.
Copper climbed off a 12-week low as US rate hike jitters subsided. Britain’s FTSE 100 edged 0.1 percent lower to 6,692.22.
Meanwhile, the markets pondered political developments in the USA and their potential financial implications. Questions over the health of presidential candidate Hillary Clinton also cast a shadow after she was diagnosed with pneumonia during the weekend.
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Despite the recent volatility in most markets a quieter session may be ahead today as traders wait patiently for Thursday’s release of USA retail data.
