Stocks opened on the back foot on Thursday after Federal Reserve minutes revealed most members thought it could be appropriate to raise US interest rates in June. Other interest rate sensitive assets including gold, emerging market stocks and commodity currencies were all lower. The dollar index steadied after a big rise on Wednesday to its highest in over six weeks.

Market pricing still suggests a rate hike in June is unlikely, but the odds have improved significantly following the minutes. The Fed is certainty aware of market expectations and by explicitly referencing June as a ‘live meeting’ are trying to massage them in the right direction. As is often the case with communications from the Fed, these minutes were an exercise in managing expectations.

FOMC board member’s willingness to raise rates in June had the usual caveat of needing to see stronger economic data. It is for this reason a June rate hike still appears unlikely. It is unlikely there will be enough time to turn the tide of what has been mostly weak economic data this year. However the odds of a move in September have improved to the point that it now appears the most likely date, should the recent trend of data improvement have any legs.

Travel and leisure stocks were the biggest drag on the FTSE 100 on news of the EgyptAir plane going missing over the Mediterranean and after a reported fall in bookings at Thomas Cook. Banks and other financial companies were top risers for a second-day running as markets price in an eventual improvement in net-interest margins as US interest rates rise.

The British pound extended gains after a surprisingly big jump in retail sales for April and a higher revision for March dashed fears that the referendum would slow consumption. It’s feasible there’s some front-loading of purchases before the Brexit vote but much more likely that shoppers just couldn’t stay away from deflating high street prices.

US stocks look set for a weaker start as a quicker rise in US interest rates risks deflating inflated asset prices amid a slowdown in corporate earnings.

A unsolicited bid from German pharma giant Bayer for US agro-chemical firm Monsanto could help market confidence at the margins, though the deal risks being added to a growing list of deals scuppered by the US government.

A $2bn rights issue is expected to see Tesla shares open sharply lower and weigh on the Nasdaq. Capital raising for the model 3 was expected but $2bn is a lot and the number of pre-orders announced were less than some Tesla executives had hinted at.


USA pre-opening levels

S&P 500: 12 points lower at 2,035

Dow Jones: 93 points lower at 17,433

Nasdaq 100: 23 points lower at 4,315


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