While you were sleeping: Stocks fall before Fed meeting

Tuesday 16th September 2014

Wall Street fell while US Treasuries rose after a report showed a surprise decline in US industrial production a day before Federal Reserve policy makers begin their two-day meeting, which may offer new clues on the timing of an interest rate increase.

The focus is on whether the Federal Open Market Committee will change its language with regards to interest rates staying low for a “considerable time” after it ends its monthly bond-buying program, currently at US$25 billion. The program is expected to end in October.

"People are concerned [Fed Chair Janet Yellen] is going to talk about raising rates," Ken Polcari, Director of the NYSE floor division at O’Neil Securities in New York, told Reuters.

A Fed report on Monday showed that US industrial production unexpectedly dropped in August, sliding 0.1 percent, while manufacturing declined 0.4 percent, as car production sank 7.6 percent.

“All this manufacturing and production data has been decent while the employment data is where things have been soft, the question is what the Fed thinks of it and whether this will soften them up a little bit,” Michael Block, chief equity strategist at Rhino Trading Partners, told Bloomberg News.

In late afternoon trading in New York, the Dow Jones Industrial Average added 0.17 percent. The Standard & Poor’s 500 Index fell 0.13 percent and the Nasdaq Composite Index dropped 1.1 percent.

Bucking the trend, shares of Apple rose, last up 0.3 percent at US$101.93 after earlier rising as high as US$103.05, after the company said it received a record four million first-day pre-orders of its new iPhone 6 and iPhone 6 Plus.

“Demand for the new iPhones exceeds the initial pre-order supply and while a significant amount will be delivered to customers beginning on Friday and throughout September, many iPhone pre-orders are scheduled to be delivered in October,” Apple said in a statement.

Meanwhile, the Organization for Economic Cooperation and Development downgraded its growth forecasts for some of the world’s major developed economies including the US, euro zone, Japan, and Germany.

US gross domestic product will expand 2.1 percent in 2014, down from a May forecast for 2.6 percent, euro-zone GDP will grow 0.8 percent this year, down from 1.2 percent in May, the OECD said in a report.

“Global growth should be somewhat more vigorous in the second half of 2014 and into 2015 given continued policy support, favourable financial conditions and growing confidence, alongside rising employment,” according to the OECD. “Monetary conditions ought to remain supportive in all the major advanced economies, while most countries need to make further progress on fiscal consolidation to ensure that debt burdens remain sustainable.”

The OECD said it was concerned about the optimism reflected in equity and bond markets.

“The bullishness of financial markets appears at odds with the intensification of several significant risks,” according to the OECD. “A number of equity markets are reaching record highs, sovereign bond yields in several countries are near all-time lows and implied share price volatility in the United States and Europe is around pre-crisis levels. This highlights the possibility that risk is being mispriced and the attendant dangers of a sudden correction.”

In Europe, the Stoxx 600 finished the session with a 0.1 percent slide from the previous close. The UK’s FTSE 100 Index slipped 0.04 percent, while France’s CAC 40 declined 0.3 percent. Germany’s DAX rose 0.1 percent.

Shares of SABMiller soared 9.8 percent while Heineken Holding rose 3 percent. Heineken said it rejected a takeover offer from SABMiller and that it intends to remain independent.

“The Heineken family has informed SABMiller, Heineken and Heineken Holding NV of its intention to preserve the heritage and identity of Heineken as an independent company,” the company said in a statement. “The Heineken family and Heineken NV's management are confident that the Company will continue to deliver growth and shareholder value.”

The spotlight on industry consolidation helped other beer stocks. Shares of Molson Coors Brewing jumped 7.3 percent, while those of Anheuser-Busch InBev added 2.8 percent.

BusinessDesk.co.nz

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