While you were sleeping: June hike is possible

Thursday 19th May 2016

The greenback strengthened while Wall Street moved lower, erasing earlier gains, after minutes from the latest Federal Open Market Committee meeting tipped an interest rate increase is likely next month.

“Most participants judged that if incoming data were consistent with economic growth picking up in the second quarter, labour market conditions continuing to strengthen, and inflation making progress toward the committee’s 2 percent objective, then it likely would be appropriate for the committee to increase the target range for the federal funds rate in June,” minutes of the FOMC’s April 26-27 meeting showed.

Fed policy makers next begin their two-day policy meeting on June 14. To be sure, a June hike is not a done deal yet.

“Participants expressed a range of views about the likelihood that incoming information would make it appropriate to adjust the stance of policy at the time of the next meeting,” according to the minutes.

“Several participants were concerned that the incoming information might not provide sufficiently clear signals to determine by mid-June whether an increase in the target range for the federal funds rate would be warranted,” the minutes noted.

Wall Street gave up earlier gains. In 2.58pm New York trading, the Dow Jones Industrial Average fell 0.2 percent. The Nasdaq Composite Index rose 0.3 percent. In 2.42pm trading, the Standard & Poor’s 500 Index slid 0.2 percent.

"They are ready to pull the trigger on a rate increase in June,” Jack Ablin, chief investment officer at BMO Private Bank in Chicago, told Reuters.

US Treasuries also fell, pushing yields on the two-year notes five basis points higher to 0.88 percent.

"You have a consensus view from the group that the June hike is in play,” Sean Simko, who manages US$8 billion at SEI Investments in Oaks, Pennsylvania, told Bloomberg. “Unless there’s an outlier in data, the market is taking the minutes as one step closer to a June hike."

The Dow fell as declines in shares of Wal-Mart and those of Nike, recently trading 3 percent and 2 percent weaker respectively, outweighed gains in shares of JPMorgan Chase and those of Goldman Sachs, trading 3.4 percent and 2.4 percent higher respectively.

Shares of The Andersons soared after the US grain handler said it rejected two non-binding, highly conditional, unsolicited takeover proposals from HC2 Holdings, including the most recent US$1.04 billion offer, because they understate the company’s value.

Andersons shares traded 28.2 percent higher at US$33.25 as of 1.37pm in New York, while HC2 shares traded 4.6 percent higher.

Shares of Hormel dropped, trading 7.8 percent lower as of 1.58pm in New York. While Hormel Foods lifted its full-year earnings outlook and posted record net earnings for the second quarter, analysts were concerned about a drop in profit margins for its refrigerated foods, according to Bloomberg.

“Sequential decline in refrigerated margins should keep a lid on the stock,” Jefferies Group analyst Akshay Jagdale, who has a hold rating on Hormel, said in a report on Wednesday, Bloomberg reported.

Europe’s Stoxx 600 Index finished the day with a 0.9 percent gain from the previous close, led by fresh appetite for bank shares.

The UK’s FTSE 100 index closed 0.03 percent lower. France’s CAC 40 index and Germany’s DAX index each ended the session 0.5 percent higher.

BusinessDesk.co.nz

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