U.S. equity markets couldn’t hold onto the rebound through the close of trade as investors parsed the Federal Reserve’s latest meeting minutes.
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The Dow Jones Industrial Average was 160 points lower, or 0.92% to 17350. The S&P 500 declined 17 points, or 0.82% to 2079, while the Nasdaq Composite shed 40 points, or 0.80% to 5019.
Minutes from the Federal Reserve’s July meeting, which were released ahead of the 2:00 p.m. embargo, showed members agreed the time for hiking rates was “approaching,” but more evidence the U.S. economy continued to show improvement was needed before the central bank decides to hike short-term rates from historic lows.
The yield on the benchmark 10-year U.S. Treasury bond fell 0.039 of a percentage point to 2.155% following the minutes’ release.
David Joy, chief market strategist at Ameriprise, which has $800 billion in assets under management, said the Fed minutes are, on balance, a little more on the dovish side of the spectrum.
“The Fed seemed mostly convinced that they’ve achieved their objective on the labor side, but not yet on the inflation side,” he said. “Not everyone agreed, there seemed to be a healthy debate…my bottom line is they can make a defensive case for [rate hikes in] September or not.”
As Joy pointed out, a lot has happened since the Fed’s last meeting. Not included in the latest meeting minutes are the July jobs report, which was much better than the June non-farm payrolls report, and China’s recent devaluation of the yuan.
“There’s been more concern from participants about China and that was raised as a potential issue, but it wasn’t at the front of mind. They did make a reference to stock weakness there. Since then, we have mounting concerns about the Chinese economy,” Joy said.
However, he said China’s recent action is a concern for the broader, global economy, but as far as the U.S. goes, it doesn’t seem to be much of a headwind for the domestic economy.
“Whether it’s a big enough issue to change minds, I would say probably not yet. I have to believe it’s something there watching more carefully now, though.”
As far as when it appears the central bank might begin to raise interest rates, Joy said he has less conviction behind a September hike than he did before the latest meeting. For him, the decision next month is likely to come down to the August jobs report in context with several key economic indicators due out in the next several weeks.
A Bloomberg spokesperson said the broken embargo was a result of an accidental headline that was sent during the preparation process and ahead of the embargo.
Ahead of the minutes, the Street digested the latest data on inflation at the consumer level. The Labor Department reported consumer prices rose 0.1% in July, a slower-than-expected pace than the 0.2% increase Wall Street forecasted. Excluding the volatile food and energy components, prices rose by the same margin. The year-over-year pace of consumer price inflation, meanwhile, rose 0.1 of a percentage point to 1.8%.
“Ongoing increases in CPI inflation should give members of the FOMC confidence that underlying inflation trends are positive, as the trends will also boost headline PCE, their preferred measure of inflation,” Barclays U.S. economist Rob Martin said in a note. “We believe these recent improvements should outweigh risks to the forecasts, driven by the renewed decline in commodity prices, and the recent surge in the value of the dollar.”
In commodities, global oil markets deepened losses after a surprise build in crude stockpiles last week, data from the International Energy Agency showed. U.S. crude tumbled to settle at a new six-and-a-half year low, dropping 4.27% to $40.80 a barrel, While Brent, the international benchmark, dropped 3.38% to $47.16 a barrel.
Energy stocks took a hit as crude tumbled, while major industry players including Exxon (NYSE:XOM) and Chevron (NYSE:CVX) declined more than 2%.
Gold, largely seen as a safe-haven asset, traded in positive territory. It rose 0.98% to $1,128 a troy ounce, while silver also soared 2.63% to $15.17 an ounce. Copper, however, declined 0.61% to $2.28 a pound.
In currencies, the euro traded up 0.34% against the U.S. dollar.
Meanwhile, worries over action overseas continued to simmer on Wall Street’s backburner on Wednesday.
Chinese equity markets staged a comeback overnight, ending the session in mostly positive territory. The extreme swings in the market have caused traders to view the situation with caution, signaling instability in the economy there. Elsewhere, Germany was set to vote on whether to approve a third bailout for Greece a day ahead of the nation’s debt repayment deadline.
“It’s the same old story with the eurozone: Germany is balking and Greece is begging,” IG market analyst David Madden wrote in a note. “Without the rescue package, Athens will be in arrears. Greece is in a lose-lose situation; should the bailout be granted, it will split the Syrzia party, but without the package it is facing default.”
European markets were trading to the downside. The Euro Stoxx 50, which tracks large-cap companies in the eurozone, fell 1.88%. The German Dax dropped 2.14%, while the French CAC 40 declined 1.75%, and the UK’s FTSE 100 slipped 1.88%.
Over in Asia, markets capped the session mixed. China’s Shanghai Composite Index rose 1.23%, while Hong Kong’s Hange Seng declined 1.31% and Japan’s Nikkei dropped 1.61.
On the corporate news front, consumer-centric companies continued to report second-quarter earnings results.
Target (NYSE:TGT) beat the Street in 2Q, and upped its full-year EPS guidance to $4.60 to $4.75 from an earlier range of $4.50 to $4.65. The company also noted sales at stores open for 12 months or more were in line with expectations, while digital sales increased 30%.
Lowe’s (NYSE:LOW) results were mixed, with a beat on the top line. The company said same-store sales rose 4.3% for the quarter helped by increased sales for items like appliances and outdoor power equipment.
Staples (SPLS) said profit was cut more than in half thanks to a continued decline in store traffic and as it awaits regulatory approval to buy rival Office Depot (ODP) for $6.3 billion. During the second quarter, Staples closed 15 stores in North America, bringing the total number of store closures to 212 since the beginning of last year.