Hawkish Fed Sends Stocks Lower
The FTSE 100 is trading sharply lower this morning after last night’s FOMC minutes showed a notable hawkish shift amongst the voting members, bringing the possibility of a US rate hike in June back to the table. Comments that most members viewed the possibility of an increase in the Fed funds rate as being likely and that the current market pricing of this outcome is “unduly low” has seen US bond yields and the US dollar rise, while stock markets around the globe have declined.
Expectations for a June hike increase
This time last week, the chance of further monetary tightening from the Federal Reserve was as low as 3% according to futures markets, and whilst the present figure of 32% suggests that the balance of probabilities still lies with no action next month the sharp increase has seemingly caught the markets off-guard. It’s worth highlighting that whilst the minutes were released last night they cover the meeting that occurred at the end of last month, meaning that since these comments we’ve had several significant releases that will have developed the FOMC’s thought process in relation to the strength of the economy further. Firstly, the lower than expected non-farm payrolls (NFPs) at the start of the May will most likely be viewed as evidence against raising rates, but the recent retail sales and inflation figures are supportive of a hike. It now seems like the next NFP report on the 3rd June takes on an even greater level of significance, and if the release shows a 200k+ number then expectations for a 25 basis point rise at the next meeting will move up another ratchet.
Royal mail posts drop in revenue
The biggest decliner so far on the FTSE 100 is Royal Mail, with shares off by more than 5% after the firm reported a drop in revenue for the 12 months to 27th March 2016. The 500-year old institution did have some bright spots in the release, with an increase in dividends to 22.1p the highlight, but it seems the market has focused on the negatives with some fairly strong selling this morning - pushing the stock price away from near 52-week highs. The rise in the US dollar is an unwanted blow for the mining sector and Anglo American is currently vying for the top spot with Royal Mail as the index’s biggest fallers. The shares moving higher today are relatively few and far between, with the banking and building sectors accounting for the majority. RBS, Barclays and Standard Chartered are all showing gains in excess of 2% whilst Taylor Wimpey and Berkeley are just about in the green, as the building firms look to add to the impressive gains earlier this week.