News Column

MARKET COMMENT: US Stocks Seen Lower On Rate Rise Fears

June 27, 2014

James Kemp

LONDON (Alliance News) - US stocks are set to open slightly lower Friday, extending weakness seen on Thursday, as hawkish comments made by a top Federal Reserve official continue to weigh heavy on investor sentiment.

US equities closed lower Thursday after St. Louis Federal Reserve President James Bullard said that he believes the US economy is improving enough to withstand an increase in short-term interest rates at the end of the first three months of 2015.

Stocks fell sharply in the immediate aftermath of the comments, but a late rally ensured that the vast majority of the losses were overturned before the close of the session. Eventually, the DJIA closed down 0.1% at 16,846.13, the S&P 500 closed down 0.1% at 1,957.22, while the NASDAQ Composite closed just fractionally lower at 4,379.046.

However, "yesterdayís comments by St. Louis Fed Chief James Bullard appear to have given investors pause this morning with US markets set open slightly lower today as investors absorb the wider meaning behind his comments about the prospects for higher US rates as soon as the first quarter next year," says Michael Hewson, chief market analyst at CMC Markets.

Ahead of the New York bell, the DJIA and NASDAQ Composite are called to open down 0.2%, while the S&P 500 is expected to open down 0.3%.

"Bullard may not be a voting member of the FOMC, but he is usually considered dovish which may suggest that other members are also leaning towards an earlier rate hike than is currently priced in," says Craig Erlam, a market analyst at Alpari. "The comments may not have been welcomed but they canít be viewed as a surprise when the Bank of England has already warned that it may raise them later this year and the US recovery has been strong in the second quarter," he adds.

UK and European stocks are faring a little better. Prior to the US equity market open, the UK'sFTSE 100 is up 0.2% at 6,748.66, the FTSE 250 is fractionally higher at 15,652.35, while the AIM All-Share index is a touch lower at 780.18. Meanwhile, the CAC 40 in Paris and the DAX 30 in Frankfurt are both up 0.1%.

"With little US data out this afternoon, any rebound for US markets should be fairly tentative," says Chris Beauchamp, a market analyst at IG.

Still to come in the data calendar Friday, the Reuters/Michigan consumer sentiment index is released at 1455 BST. Economists' expectations are for the index to be upwardly revised to 82.0 from the preliminary estimate of 81.2, having come in at 81.9 in May.

Ahead of the release, the pound trades at USD1.7029, while the euro trades at USD1.3625.

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Source: Alliance News

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