While you were sleeping: Rate chatter rises

Thursday 21st August 2014

Wall Street advanced, while US Treasuries fell as investors await Federal Reserve Chair Janet Yellen’s speech this Friday at the annual gathering of the world’s top central bankers in Jackson Hole for her take on the outlook for higher interest rates.

Minutes of the latest Federal Open Market Committee meeting, held July 29-30, showed that US policy makers were optimistic about the progress of the pace of recovery in the world’s largest economy and that there was a possibility they might have to lift the benchmark interest rate sooner than expected.

“Participants generally agreed that labour market conditions and inflation had moved closer to the Committee's longer-run objectives in recent months, and most anticipated that progress toward those goals would continue,” according to the minutes.

“Moreover, many participants noted that if convergence toward the Committee's objectives occurred more quickly than expected, it might become appropriate to begin removing monetary policy accommodation sooner than they currently anticipated,” the minutes showed.

In late afternoon trading in New York, the Dow Jones Industrial Average added 0.43 percent, the Standard & Poor’s 500 Index gained 0.24 percent, while the Nasdaq Composite Index eked out an advance of 0.01 percent. Earlier in the session the S&P 500 fell as low as 1,977.68 and rose as high as 1,987.68.

Gains in shares of Home Depot and Boeing, up 3 percent and 1.6 percent respectively, led the Dow higher.

US Treasuries fell. Yields on the five-year note rose six basis points to 1.63 percent.

“The gist of this sounds much more aggressive than what we expected,” Brian Edmonds, the head of interest-rates trading in New York at Cantor Fitzgerald, one of 22 primary dealers that trade with the Fed, told Bloomberg News of the Fed minutes.

The US dollar strengthened, rising 0.4 percent against the euro and advancing 0.7 percent against the yen.

The minutes heighten the anticipation for Yellen’s speech on Friday in Jackson Hole, Wyoming.

In Europe, the Stoxx 600 edged lower to finish the session at 335.3. Germany’s DAX fell 0.2 percent, France’s CAC 40 slid 0.3 percent, while the UK’s FTSE 100 declined 0.4 percent.

Here, minutes from the latest Bank of England meeting earlier this month showed two of the nine monetary policy committee members wanted to lift the Bank Rate, currently at 0.5 percent, by 25 basis points, which is being seen as an unexpected challenge to Governor Mark Carney.

“For two members, in particular, economic circumstances were sufficient to justify an immediate rise in Bank Rate,” according to minutes of the Aug 6-7 meeting released on Wednesday. “These members noted that the continuing rapid fall in unemployment alongside survey evidence of tightening in the labour market created a prospect that wage growth would pick up.”

BusinessDesk.co.nz

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