The Minute of Thursday
- Global stocks are slipping after a grim assessment of the second half of the US Federal Reserve’s recovery.
- Minutes from the Fed’s July interest rate meeting in July suggest further support in the coming months, but a possible shift in focus to inflation targeting and direct market intervention.
- The US dollar picks higher at the hint of inflation targeting, while bond yields rise as investors pair Treasury holdings.
- Oil prices slide according to EIA data shows a smaller-than-expected smoke escape, and estimates a 14% year-on-year decline in U.S. energy demand.
- Apple shares rise higher in pre-market trading after the tech giant’s market cap briefly traded the $ 2 trillion mark on Wednesday.
- US equity futures suggest softer open on Wall Street ahead of weekly data on unemployment claims and 8:30 am Eastern time.
Wall Street futures traded lower Thursday, while the dollar extended its rebound from two-year lows as investors reset growth expectations in the wake of a grim assessment of the Federal Reserve’s U.S. economic recovery.
Fed officials, who have been putting the coronavirus pandemic at the center of their monetary policy strategy for months, were uniformly concerned that gains made in consumer and employment markets in the late spring and summer in the second half of the year disappear, according to up to minutes of their July policy meeting, which were published last Wednesday.
The Fed officials also indicated more stimulus in the coming months, but indicated a preference to wait for U.S. lawmakers to vote on another bill for coronavirus, perhaps in September, before taking action.
Noting the increase in uncertainty over the economic outlook over the inter-period period, several participants suggested that additional accommodation might be needed to promote economic recovery and return inflation to the 2% target of the Committee, “said the minutes.
The bleak outlook, coupled with a suggestion that the Fed’s policy strategy could shift to a more flexible inflation target, drove US equities futures lower in overnight trading as stock markets roamed the world firmly in the red.
Persistent coronavirus outbreaks in large economies, such as Germany and South Korea, added to the bearish sentiment, as figures showed that global infections were growing to 22.3 million and U.S. cases kept at a daily rate of about 50,000.
Futures contracts tied to the Dow Jones Industrial Average suggest the benchmark will extend its three-day losing streak with a 105-point opening of the clock decline, while those linked to the S&P 500 are priced for a 10-point pullback .
The US dollar index extended its overnight gains against a rate of six global currencies to trade at 93,138, a full 1.1% higher than the two-year low of 92.12 the index traded earlier this week. Some of the gains were linked to the Fed’s hint at a flexible inflation target, which could see a rate of more than 2% once a wider recovery takes place to compensate for years of under -shot.
A similar dynamic was in place in the bond market, where the suggestion of yield curve control, as a direct intervention on a daily basis by the Fed, triggered a mini-exodus of the Treasury market, causing benchmark yields to be moderately higher across the board print.
European stocks were mostly caught in the broader stock market downturn, with the Stoxx 600 falling 0.7% in the early hours of trading in Frankfurt, while Britain’s FTSE 100 in London fell 1% when the pound its ground held against a rising U.S. dollar.
The strength of the dollar was also a factor in sluggish commodity prices, which were weaker from the start of the session following the bearish outburst of the Fed and data from the US Department of Energy showing the estimate of domestic fuel estimates was about 14% lower than the same period last year.
WTI contracts for delivery in October, the new US benchmark, traded 42 cents lower on Tuesday close to New York and were trading hands at $ 42.69 per barrel in the early European deal, while Brent contracts for October , the global benchmark, 49 cents were seen lower $ 44.88 per barrel.
During the day in Asia, the Japanese Nikkei fell 225 1% on the session to close at 22,880.62 points as Wall Street’s Wednesday sell-off shares and currencies circulated around the region, pushing the yen to 106.02 against the US dollar.
The region-wide MSCI ex-Japan benchmark, meanwhile, fell 1.65% in the last hours of trading, led by a 3.8% decline for the South Korean Kospi and the third straight day of decline for the Shanghai Composite .
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