Wednesday, September 14, 2016

Interest rate uncertainty weighs on markets

US stocks fall on rate hike worries

US stocks fell on Tuesday as investors confidence was undermined by uncertainty over timing of a rate hike and falling oil prices. The dollar resumed the advance as markets discounted the dovish comments of Governor Brainard on Monday that the central bank should be cautious and raise rates after inflation rises.
The live dollar index data show the ICE US Dollar index, a measure of the dollar’s strength against a basket of six rival currencies, rose 0.4% to 94.534. The Dow Jones industrial average ended 1.4% lower at 18066.75 led by 2.73% loss in Chevron. The 2.5% gain in shares of Apple were not enough to offset losses in other constituents of the blue chip index. The S&P 500 fell 1.4% to 2127.02 led by energy stocks. Oil fell sharply after the International Energy Agency cut its demand forecast and warned supply could continue to exceed demand well into 2017. The Nasdaq index lost 1% to 5155.25. Conflicting messages form Federal Reserve policy makers who seem divided whether the rates should be raised soon or later after inflation rises contributes to increased volatility. The economic data were mixed: the National Federation of Independent Business Small Business Index slipped in August to 94.4 from 94.6 as owners became more hesitant with election uncertainties. The federal budget deficit for August rose slightly less than expected, and median household income posted a record 5.2% increase in 2015 after years of stagnation. Today at 13:00 CET Mortgage applications will be released by the Mortgage Bankers’ Associations in US. At 14:30 CET August Import Prices will be released. The tentative outlook is negative for dollar.
European stocks decline following oil prices
extended losses on Tuesday weighed by falling energy stocks. The euro and British Pound edged lower on resumed strength of dollar as investors worried about a possible rate hike at Federal Reserve’s meeting next week.The Stoxx Europe 600 index lost 1%. Among oil companies shares of Spain’s Repsol tumbled 2.5%, Norway’s Statoil lost 2%. Germany’s DAX 30 ended 0.4% lower at 10386.60. Economic data did little to boost market sentiment: euro-zone ZEW Economic Sentiment for September rose less than expected; German ZEW Economic Sentiment for September came in lower than expected, unchanged from previous month; the final reading of German inflation confirmed preliminary estimates, with monthly inflation unchanged in August from July but increasing 0.4% from a year earlier. France’s CAC 40 tumbled 1.2% and UK’s FTSE 100 slipped 0.5% with UK inflation coming in weaker than expected. Today at 10:30 CET July labor market report will be released in UK, the outlook is negative for Pound. At 11:00 CET July Industrial Production will be published in euro-zone. The tentative outlook is negative for euro.
Asian stocks are retreating on Wednesday
Asian stocks are mixed today with investors concerned about central bank plans to start curtailing monetary stimulus programs. Nikkei fell 0.7% today to two-and-half week low of 16614.24 despite weaker yen. Bank stocks were hit hard as investors were concerned the Bank of Japan may cut interest-rate at next week’s policy meeting, driving rates deeper into the negative territory, and cut its purchases of long maturity bonds to steepen the yield curve. Such a move will hurt banks’ earnings but will benefit life insurance companies. Chinese stocks fell ahead of holidays despite positive reports Tuesday showed industrial output and retail sales grew faster in August than expected: Shanghai Composite Index is 0.7% lower and Hong Kong’s Hang Seng index is 0.2% down. China's financial markets will be closed from Thursday, September 15 through Sunday, September 18 for the Mid-Autumn Festival. Australia’s All Ordinaries Index is up 0.3%.
Oil futures prices recover on lower than expected stock build
Oil futures prices are edging higher today after the industry group American Petroleum Institute reported late Tuesday an increase of 1.4 million barrels in US crude stockpiles last week, less than the expected 3.8 million barrel. October West Texas Intermediate crude fell 3% to $44.9 a barrel on New York Mercantile Exchange on Tuesday. Today at 16:30 CET US Crude Oil Inventories will be released by the Energy Information Administration.
Precious metals are edging up on Wednesday
Gold is edging up today after spot gold lost 0.6% yesterday as investors evaluated chances of a rate hike next week after conflicting messages from Federal Reserve officials. Gold declines when rates go up, which increases the opportunity cost of holding non-yielding assets such as precious metals. Spot silver is up 1.1% t at $19.08 an ounce after it fell over 1 percent in the previous session. Platinum is 0.8% higher at $1042.40 following over 2% loss on Tuesday.

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