Stocks Drop as Hike Fears Return
- Stocks sharply lower at US open
- June rate hike not such a crazy idea
- UK consumers bat off Brexit fears
Anxiety is setting in for financial markets, as the proposition of
another rate hike from the Fed draws the bears out once more. Today’s US
open has seen the Dow crash to a two month low, bringing the FTSE down
with it as rate sensitive banks benefit at the expense of the wider
market. The US dollar strength continues to be a running theme, as
energy, metal and materials producers suffer at the hands of a yet
another sea of red for the sector.
Yesterday’s Fed minutes provided the latest clue that perhaps a June
rate hike may not be such a crazy idea, with the markets now factoring
in a 32% chance of action. This shift from 4% on Monday to 32% today
goes a long way to explain the substantial rise in the US dollar this
week. With a hawkish Fed and a three year high in US CPI, the potential
implications of a strong jobs report in June is starting to click in the
minds of investors.
The UK economy appears to be in rude health if the activity of consumers
is anything to go by. An outperformance across the board provided an
increasingly bullish view of economic activity in the face of Brexit
fuelled uncertainty. Unfortunately if the BoE are going to wait for all
elements to be lined up perfectly, a rate hike may never come, for as
soon as one indicator improves, another falls away.
