“There is a battle over rates raging inside the Federal Reseve”, Bloomberg TV’s Erik Schatzker said on “Bloomberg Markets” after the minutes were released at 2 p.m. on Wednesday. “I think the labor market is going to continue to tighten, and in that environment I think we are getting closer to the day where we are going to have to snug up interest rates a little bit”.
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NEW YORK – Stocks around the globe turned lower on Wednesday as investors sold equities ahead of the release of minutes from the Federal Reserve’s July meeting a day after two Fed officials said USA short-term interest rates could rise as soon as next month.
A strategist at Nomura Securities Tomoaki Shishido said, “Clearly the Fed seems to think the market’s pricing of a September rate hike is too low”.
Regardless, gold investors will thus be closely scrutinizing the Fed’s commentary. He pointed to the massive quantitative easing efforts coming from the Bank of Japan, the European Central Bank and the Bank of England as factors driving up the price of US bonds as investors search for yield around the globe.
Meanwhile in American equities, the Dow Jones industrial average and S&P were each up 0.2 percent, while the dollar softened 0.3 percent to $1.1309 against the euro. The GLD, which is the largest ETF tied to the price of gold, has gained about 26% since the start of 2016.
Federal funds futures fell in the wake of comments from New York’s Dudley, who said the U.S. central bank could possibly raise interest rates in September if the economy improves further. Yields fall when bond prices rise.
“This is because the markets now expect only one or two rate hikes this year, when at the end of 2015 they had expected up to four”, added Ishikawa, who sees negative economic developments in Europe and Britain in the wake of Brexit weighing on the Fed’s decisions and canceling out any lift from positive US indicators.
The minutes showed Federal Reserve officials sought to keep their options open at a July policy meeting as they tried to reconcile differences on the economic outlook and when to raise short-term interest rates.
But several other officials said the Fed should wait before nudging up the rate until incoming data “provided a greater level of confidence that economic growth was strong enough to withstand a possible downward shock to demand”, said the minutes of the central bank’s July meeting. Crude oil futures initially rose after U.S. Energy Information Administration weekly figures showed a larger-than-expected draw in inventories and added to gains following the Fed minutes.
His comments, including an unusual warning on low bond yields, were seen as more hawkish than a cautious message last month when in a speech he outlined risks to the economy.
Still, even one rate hike this year would be be much lower, considering the Fed had projected last December that it would raise rates four times this year. London’s FTSE 100 declined 0.2 percent to 6,878.66.
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Among the actives, Hyundai Motor skidded 2.21 percent, while Hyundai Mobis fell 0.77 percent, Samsung Electronics climbed 1.49 percent and SK Innovation advanced 2.30 percent.
