The coupon maturity most sensitive to Fed expectations is coming off its steepest weekly selloff since May after Fed Chair Janet Yellen said in a speech that policy makers “anticipate that gradual increases in the federal funds rate will be appropriate over time to achieve and sustain employment and inflation near our statutory objectives”.
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Stock futures prices are sank lower after the speech, as Wall Street watchers say Yellen is sending a mixed “see-saw” message on interest rates.
Nonetheless, it would be foolhardy to suggest the Federal Reserve is about to shift to extreme hawkishness (in the context of global central bank policy) – indeed, the very tone of USA monetary policy since 2009 has been to keep markets guessing. Banks benefit from higher interest rates, which can boost margins.
“The market’s getting more comfortable with the idea that the Fed is going to raise rates this year”, said Chris Zacarelli, chief investment officer at Cornerstone Financial Partners. Spot gold touched its lowest since July 26 at $1,314.70, and was down 0.2 percent at $1,318.66 an ounce at 0915 GMT.
In early European trade Frankfurt lost 0.2 percent and Paris was 0.4 percent off. London was closed for a holiday. Apple shares were last down just under 1 percent.
Dow e-minis were down 3 points, or 0.02 percent, with 15,001 contracts changing hands.
In Europe, the pan-European Stoxx Europe 600 index rose half a percent to hit a two-week high on Tuesday, as investors lapped up banking stocks on expectations they will benefit from higher interest rates.
The Case/Shiller house price index, due at 9:00 a.m. ET, is likely to have risen 5.2 percent in the 12 months to June. A strong greenback makes fuel purchases more expensive for countries using other currencies domestically.
Treasury yields fell a bit as he spoke. US shares were set for a modest open, with Dow and S&P 500 futures unchanged.
Brent crude was last down 74 cents, or 1.48 per cent, at $49.18 a barrel.
Crude oil futures fell about 2 percent on Monday as investors reacted to greater-than-expected Middle East output and a stronger U.S. Dollar. The British Pound also weakened against the U.S. Dollar with the GBP/USD closing at 1.3074, down 0.0055 or -0.42%.
At the annual Jackson Hole symposium, various Fed officials provided a roadmap for the USA economy which included at least one rate hike before the year concludes.
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The next key indicator is Friday’s jobs report while Fischer, who said that the data could weigh on the decision over a hike, is due to speak again later on Tuesday in a television interview.
