While you were sleeping: Stocks fall before Fed meets

Tuesday 14th June 2016

Equities on both sides of the Atlantic fell, while US Treasuries gained, as investors positioned themselves for the start of a US Federal Reserve policy meeting and next week’s UK vote on Britain’s membership in the European Union.

The two-day Federal Open Market Committee meeting is scheduled to start on June 14. Fed Chair Janet Yellen is set to give a press conference at the end of the gathering on Wednesday.

Both the Fed’s statement and Yellen’s comments will be scrutinised for any clues about the timing of a rate rise.

Wall Street declined. In 3.02pm New York trading, the Dow Jones Industrial Average dropped 0.46 percent. In 2.47pm New York trading, the Standard & Poor’s 500 Index slid 0.38 percent. In 3.03pm trading, the Nasdaq Composite Index shed 0.62 percent.

“Even though nobody is expecting a rate hike, everyone will look at what Yellen will say at the press conference,” John Plassard, a senior equity-sales trader at Mirabaud Securities in Geneva, told Bloomberg.

US Treasuries gained, pushing yields on the benchmark 10-year note two basis points to 1.63 percent as of 11.37am in New York.

In Europe, the Stoxx 600 Index ended the day with a slide of 1.8 percent from the previous close. The UK’s FTSE 100 index declined 1.2 percent, while Germany’s DAX index retreated 1.8 percent, and France’s CAC 40 index fell 1.9 percent.

“We are 10 days from the Brexit vote, and also days away from the election in Spain, while oil is lower and volatility is the highest in months,” Plassard noted. “There are many uncertainties, so we could continue seeing declines and touch new lows in the days to come.”

The Dow moved lower as slides in shares of Microsoft and those of American Express, down 2.6 percent and 1.8 percent respectively, overshadowed gains in shares of Exxon Mobil and those of Intel, last trading 1 percent and 0.9 percent higher respectively.

Shares of Microsoft fell after the company said it agreed to buy LinkedIn for US$26.2 billion in one of the industry’s largest deals ever.

“The LinkedIn team has grown a fantastic business centred on connecting the world’s professionals,” Satya Nadella, CEO of Microsoft, said in a statement. “Together we can accelerate the growth of LinkedIn, as well as Microsoft Office 365 and Dynamics as we seek to empower every person and organisation on the planet.”

Jeff Weiner will remain CEO of LinkedIn, reporting to Nadella, Microsoft said.

Shares of LinkedIn soared, last up 46.8 percent to US$192.40, just under Microsoft’s US$196 a share offer.

Moody's Investors Service placed Microsoft's “AAA” rating under review for downgrade after the deal was announced.

“Particularly in the context of the proposed acquisition, further debt issuance to support capital returns would contribute to ratings pressure,” Richard Lane, a Moody’s analyst said in the statement, according to Bloomberg.

Oil prices slid. Brent crude futures traded 40 cents lower at US$50.14 per barrel in afternoon trading in New York, while US crude was down 40 cents at US$48.67 a barrel.

"Bit of an inflection point for the oil markets right now with macro factors and the rising rig count weighing in on the negative sentiment while the Niger Delta Avengers are a good reminder that geopolitics will likely get worse before they get better,” Michael Tran, director of energy strategy at RBC Capital Markets in New York, told Reuters.

BusinessDesk.co.nz

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