Stocks are sliding this morning after three consecutive days of solid gains.
The bounce back after last week’s severe sell-off was starting to look a bit tired yesterday, and now equity markets have turned lower. The bullish sentiment has fizzled out, but it isn’t anything to be alarmed about, traders are just booking their profits.
The Federal Reserve released the minutes from the July meeting last night, and it appears that not a whole lot has changed. Inflation remains below their target and this is causing division over when the next interest rate hike should be. Going into the meeting, traders weren’t convinced there would be another increase in the interest rate this year, and they are still not. The Fed funds futures market is pricing in a 40% chance of an interest rate hike in December.
At least the minutes showed the Fed is closer to announcing a start date for the unwinding of $4.5 trillion balance sheet. Dealers are looking to the Fed’s meeting in September for an official start date for the balance sheet reduction, which could be in the last quarter of the year.
The US dollar has pushed higher this morning but it is still trading below the pre Fed minutes announcement level, and gold has retained the gains it made on the back of the announcement.
The pound had a mixed reaction to the latest UK retail sales figures, which on a month-on-month basis rose by 0.3%, while economists were expecting 0.2%, but the June number was revised down to 0.3% from 0.6%. The core figure was a similar situation, where it topped estimates but last month’s number was revised lower. The positives in the report were cancelled out by the lower revisions.
We are anticipating the Dow Jones to open 14 points lower at 22,010, and we are calling the S&P 500 down 3 at 2465.
At 1.30pm, the US will announce the initial jobless claims report and the Philly Fed business index, and the consensus is for 240,000 and 18.5 respectively.
Wal-Mart and Gap will announce their second-quarter results today.
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