Wednesday, October 12, 2016
U.S. equities traded higher on Wednesday as investors parsed through the Federal Reserve‘s September meeting minutes.
Fed officials in favor of hiking interest rates worry that waiting too long could send the country into recession, the minutes showed.
“Still, the dovish case was made forcefully in the minutes, as was the hawkish case,” said Quincy Krosby, market strategist at Prudential Financial. “We remain where we were: a market still betting Chair Yellen wants a hike in December. Mark your calendar for December 13-14 to see if Yellen sticks to the message she’s been telegraphing since Jackson Hole.”
At an unusually divisive Federal Open Market Committee meeting in September, hawkish members said history holds a worrisome lesson for a central bank that has kept a historically accommodative monetary policy in place for the past eight years.
“While the outcome of that meeting was dovish, these minutes were pretty dovish,” said Talley Léger, investment strategist at OppenheimerFunds. “I think it was very interesting to get more color” from the three Fed dissenters.
The S&P 500 rose 0.35 percent, with real estate advancing 1.3 to lead advancers. Finanicals, meanwhile, also caught a bid, trading about 0.3 percent higher.
Regarding the rise in financials, Kim Forrest, senior equity analyst at Fort Pitt Capital, said “it could be that people are repositioning ahead of Friday’s bank earnings.” Wells Fargo, JPMorgan Chase and Citigroupare all slated to post quarterly results Friday before the bell.
“I think it has a lot to do with the notes coming this afternoon,” said JJ Kinahan, chief strategist at TD Ameritrade, ahead of the minutes’ release. “I think the consensus is they’re going to be a bit more hawkish, setting the tone for a December rate hike.”
The Dow Jones industrial average gained 50 points, with Applecontributing the most gains. The Nasdaq composite held 0.15 percent higher after trading around the flatline.
The narrow trading range in the market has “more to do with the lack of factors that make stocks go up. So far all you’ve had is negative stuff come out,” said John Conlon, chief investment officer at People’s United Wealth Management.
Bond yields around the world rose on Wednesday, with the benchmark U.S. 10-year note yield near 1.77 percent. Reuters reported the yield briefly broke above 1.80 percent for the first time since early June. The 10-year German bund yield also rose to trade at 0.068 percent, while Spain’s 10-year yield hit its highest level since July 25.
“I think it’s all about rates and discounting the coming rate hike” from the Fed, said Peter Cardillo, chief market economist at First Standard Financial. “I think yesterday’s debacle was mostly due to yields moving to a new, higher trend. I think that spooked the market a little bit.”
The Treasury Department sold $24 billion in three-year notes, an auction which saw the highest yield since January. The department also sold $20 billion in 10-year notes, an auction which saw weak demand.
In oil markets, U.S. crude fell about 1 percent to $50.31 a barrel in afternoon trade, while traders weighed talks between OPEC and other oil-exporting nations on curbing output.
“Investors have lost their confidence further after the recent dispute over supply from OPEC, this is impacting the US markets. Negative headlines will continue to push the price of oil and energy sector will have footprints of this,” said Naeem Aslam, chief market analyst at Think Markets.
Stocks fell sharply on Tuesday, with the three major U.S. indexes dropping more than 1 percent.
Ahead of the minutes’ release on Wednesday, New York Fed President William Dudley characterized U.S. inflation expectations as “well-anchored.” Dudley also said if the Fed were to redo its quantitative easing, or asset purchase program, that “we would have gotten to a more aggressive posture sooner than we did.”
The market is largely anticipating the Fed to raise interest rates later this year, with Fed Funds futures pricing in a more-than 65 percent probability of a December move.
“Obviously, that could all change and investors have previously jumped at the opportunity to abandon the rate hike ship but I doubt that will happen today. Three of the 10 voting FOMC members dissented at the last meeting, all of whom are permanent voters, which would strongly suggest that a majority is not far away, not with a number of other policy makers appearing to lean that way, including Chair Yellen herself,” Craig Erlam, senior market analyst at Oanda, said in a note to clients.
Investors also kept an eye on quarterly corporate reports, as earnings season kicked off Tuesday with Alcoa posting weaker-than-expected results.
Maris Ogg, president at Tower Bridge Advisors, said the weak start to the season is adding more skittishness to the market. “Couple that with high valuations, I think it’s no surprise to see buyers waiting until they see the numbers,” she said. Ultimately, “I think earnings will be fine and this will dissipate.”
Railroad giant CSX is expected to report quarterly results Wednesday after the bell.
In economic news, mortgage applications fell 6 percent last week as rising rates weighed. The August job openings and labor turnover survey, also released Wednesday, showed the number of job openingfalling to 5.4 million.
Overseas, European markets traded mostly lower, with the pan-European Stoxx 600 index falling 0.47 percent as sentiment was dented by the U.S. session’s poor performance Tuesday.
In afternoon ET, Reuters reported the European Central Bank may discuss technical changes to its quantitative easing program next week, but may wait until December to decide whether it will extend the program beyond next March.
“We’ve seen this movie play before. Whenever we see the markets in trouble, central banks come in and try to influence investors,” said Adam Sarhan, CEO at Sarhan Capital. ” Clearly, they’re doing their very best to keep equity markets higher.”
The British pound, meanwhile, rose 0.9 percent to $1.2226 after falling sharply on Tuesday, but Brexit worries linger.
“Concerns of a hard Brexit continue to fester, causing more inflation pain for the Bank of England and for consumers. The selling pressure has easing off somewhat as Theresa May takes the foot off the gas in terms of a hard Brexit,” Think Markets’ Aslam said.
The U.S. dollar held 0.15 percent higher against a basket of currencies, continuing on its upward trend. The euro fell 0.3 percent against the greenback to $1.1025.

Link:
http://www.cnbc.com/2016/10/12/us-markets.html