On 18 May, 2016 – The Fed is considering raising US interest rates

Investors were cautious in Europe and Asia as they waited for the release of the latest FOMC minutes.
United States
US markets ended Wednesday little changed after minutes from the Federal Reserve’s April policy meeting indicated that the Fed was seriously considering a rate increase at its June meeting. Trading was choppy throughout the day. The Dow Jones industrials slipped 3.36 points while the S&P added 0.42 point. The Nasdaq was 0.5 percent higher.
The Fed minutes of its meeting in April showed that there was a widely held view that it “likely would be appropriate” to raise rates at its June meeting as long as the economy and labor markets continue to strengthen and inflation shows signs of accelerating. FOMC members sought to keep their options open at the next meeting if incoming data showed an improving economy. Fed officials expect two interest-rate increases this year as of their March forecasts, while many investors have predicted just one increase.
JPMorgan Chase and Goldman Sachs climbed as investors anticipated bigger profits on future loans. Higher interest rates tend to widen the gap between what banks pay depositors for their money and what they charge when they lend the money out. Target was down after the company reported earnings that beat expectations but also said that sales had slowed. The company also gave a forecast that disappointed investors. Many other retailers followed Target lower including Walmart and Costco Wholesale. The home improvement chain Lowe’s advanced on surging first-quarter profit and higher comparable-store sales. The company also raised its outlook for the year, benefiting from a strengthening housing market.
Europe
European markets opened trading on the negative side and remained there for much of the trading session. However, the markets managed to rebound into positive territory in late trading and around the time that the US markets overcame their early weakness. The FTSE was virtually unchanged (down 1.97 points). The CAC and DAX both added 0.5 percent and the SMI ended up 0.8 percent.
Investors appeared reluctant to make any major moves ahead of the release of the minutes of the most recent Federal Reserve meeting after markets here were closed. Financial stocks were among the best performing stocks while mining and resource stocks were under pressure as the recent rally in commodities stalled.
Industrial robot maker Kuka soared after Chinese home appliances manufacturer Midea made an unsolicited takeover bid for the company. Banks including Deutsche Bank, Commerzbank, Crédit Agricole, BNP Paribas and Société Générale advanced. In Paris, Suez Environnement declined after a broker downgrade as did Scor. In London, Burberry retreated after it reported a decline in full-year profits and warned the challenging environment for the sector would continue.
SABMiller advanced after the brewer reported a decline in annual net profit, reflecting exceptional charges of $721 million principally relating to the impairment of investments in Angola and South Sudan, together with costs associated with the AB InBev transaction. Booker Group gained on a broker upgrade. Barclays, Lloyds Banking Group and Royal Bank of Scotland rallied. Mining stocks were under pressure thanks to the rising US dollar. Anglo American, Antofagasta, Glencore and BHP Billiton tumbled. Sonova was down in Zurich after its annual sales and profit targets fell short of expectations. Novartis advanced after announcing plans to separate its oncology unit from the rest of the pharmaceuticals business.
April harmonized index of consumer prices slid 0.2 percent from the prior year after staying flat in March. UK ILO unemployment rate remained at a decade-low in the three months to March at 5.1 percent and the employment rate hit a record high, reflecting that the labor market weathered uncertainty on the EU referendum.
Asia Pacific
Most Asian stocks tumbled Wednesday on hawkish comments from Fed officials and upbeat US data pointed to a US interest rate increase this year dampening investor sentiment. A sell-off in Chinese and Hong Kong shares on worries about slowing growth and fading hopes for more policy easing also weighed on risk appetite.
The Shanghai Composite retreated 1.3 percent as positive home price data dashed hopes for more fiscal and monetary stimulus. Home prices in majority of the Chinese cities increased further in April, with gains in second-tier cities outpacing advances in first-tier metropolitan areas such as Beijing and Shanghai. On a monthly basis, house prices rose in 65 cities out of 70 surveyed by the government. Investor sentiment was also dampened after Zhang Dejiang, the Chinese Communist Party’s third-highest-ranking official, made no mention of a trading link between bourses in Hong Kong and Shenzhen in a keynote speech delivered on Wednesday. The Hang Seng dropped 1.5 percent.
The Nikkei was virtually unchanged (down 8.11 points) after reversing early gains. The yen gyrated against the dollar and better-than-expected GDP data following a sharp contraction in the final quarter of last year led investors to pare bets on further stimulus. The first estimate of first quarter GDP was up 0.4 percent on the quarter against expectations of a 0.1 percent increase. When compared with the same quarter a year ago, GDP was up 1.7 percent. Suzuki Motor slumped after admitting it had used improper fuel economy tests for some cars it sold in Japan. Nissan declined after South Korea claimed the automaker manipulated its emissions on the diesel variant of the Nissan Qashqai. Mitsubishi Motors rallied on a Nikkei report that its President would step down over the fuel economy data scandal that surfaced in April. Mitsubishi UFJ Financial Group advanced as did Apple’s supplier Alps Electric.
Both the S&P/ASX and All Ordinaries retreated 0.7 percent. National Australia Bank, Commonwealth and investment bank Macquarie Group were down after data showing a continuing slide in wage growth in the first three months of the year revived June rate cut hopes. Miners were mixed with BHP Billiton advancing but Rio Tinto and Fortescue Metals Group retreating. Energy stocks also ended mixed.
The Kospi declined 0.6 percent on institutional selling. The Sensex lost 0.3 percent mirroring global weakness elsewhere as a string of optimistic US data and hawkish comments from three Federal Reserve officials brought the issue of interest rate increases in the US back into focus.
Global Stock Markets

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Looking forward*
Japan posts March machine orders and Australia releases its April labour force survey. The UK reports April retail sales. The European Central Bank publishes minutes of its last monetary policy meeting. In the US, the May Philadelphia Fed business outlook survey and April leading indicators will be reported along with the weekly jobless claims, money supply and Fed balance sheet data.
*Note — all releases are listed in local time.

Source: Fidelity

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