Friday’s gains notwithstanding, the major indexes have barely moved this year.
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“The question for traders now is whether this Fed rate hike issue is a “risk-on” or a “risk-off” situation”, said Saxo Bank FX strategist John Hardy. The dollar was last mostly flat against the Swiss franc at 0.9905 franc after hitting a more than 10-week high of 0.9925 franc earlier on Friday.
Not everyone believes a rate hike is imminent.
Stocks that are typically viewed as income substitutes or bond proxies become expensive when the Fed is about to raise interest rates and typically sell off, Arone said.
With weak labor-force participation and other indications of anemic growth, the Fed is leaving itself plenty of outs for not raising rates in June, said Joe Saluzzi, co-head of equity trading at Themis Trading, in an interview.
“There’s been a big rally in the US dollar obviously since the Fed minutes came out Wednesday so that is depressing all currencies”, he said. And a basket of leading economic indicators (http:// www.wsj.com/articles/conference-boards-leading-economic-index-jumped-in-april-1463668092) advanced at a quicker clip in April, suggesting US growth will pick up after a slow start to the year.
His comments reinforced surprisingly clear signals of a possibly imminent rate hike in minutes of the Federal Reserve’s April policy meeting and underpinned an already firm greenback.
A rally in equities SPX, +0.77% which rebounded somewhat from Thursday’s sharp selloff, added to the selling pressures in the Treasury market, as investors sold government bonds, which are considered safe investments, in favor of riskier assets, such as stocks.
The Fed – led by chair Janet Yellen – lifted interest rates by 0.25% in December after seven years at near zero but expectations about further increases this year have since been dampened following signs of a global economic slowdown as well as market turbulence.
Policy makers have been pushing investors to prepare for rate increases for more than a year, but only delivered one.
“The economy is good enough that even the Fed thinks it might be able to raise rates”, he said.
Fed Vice Chairman Stanley Fischer said Thursday that the USA needs faster potential growth (http:// www.marketwatch.com/story/feds-fischer-says-us-needs-faster-potential-growth-2016-05-19-91032131) but he didn’t discuss the short-term outlook for monetary policy or the economy.
“The minutes underscore just how volatile Fed communications have been”, Robin Brooks and Michael Cahill of Goldman Sachs said in a note.
Boockvar questioned whether the stagnation in manufacturing would warrant the Fed’s intention to normalize rates.
Dow component Wal-Mart’s shares surged 9.58 per cent after the retailer’s first-quarter results beat analysts’ estimates.
Stocks rose from the start of trading, following sizable gains in Europe.
Monsanto (MON.N) was up 7.8 percent at $104.50 after disclosing German group Bayer has made an unsolicited takeover proposal. The euro rose 0.07 percent against the dollar at $1.1210.
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-Victor Reklaitis in London contributed to this article.
