As the markets look for any indication on just what the U.S. Federal Reserve might do with interest rates, BNN speaks with former Dallas Fed insider Danielle DiMartino Booth, now President of Money Strong, for her take on what the latest FOMC minutes reveal about the possibility of a summer rate hike.
Canadian and U.S. stocks erased gains, even as banks held onto a rally, after minutes from the last U.S. Federal Reserve meeting showed policy makers in April said an interest-rate increase would be appropriate in June if the economy continued to improve.
Toronto's S&P/TSX composite index declined 75.33 points, or 0.54 per cent, to 13,841.77 after the Fed minutes were released. It was dragged down by the materials and energy sectors.
The Canadian dollar was off 0.5 of a cent to 77 cents (U.S.).
The S&P 500 fell 0.2 percent to 2,043.50 in New York, after rising as much as 0.7 per cent. The Dow Jones industrial average dipped 42.67 points, or 0.24 per cent, to 17,487.31 points. Meanwhile, the Nasdaq was up 10.68 points, or 0.23 per cent, to 4,726.41.
"Most participants judged that if incoming data were consistent with economic growth picking up in the second quarter, labour market conditions continuing to strengthen and inflation making progress toward the committee's 2 per cent objective, then it likely would be appropriate for the committee to increase the target range for the federal funds rate in June," according to minutes of the Federal Open Market Committee's April 26-27 meeting released Wednesday in Washington.
"The market's just a little bit on edge and there's not a lot of conviction," said Robert Pavlik, who helps oversee $9.1-billion as chief market strategist at Boston Private Wealth. "We're seeing some rotation out of the more defensive areas like staples, and I think that relates to yesterday's inflation concern coming in hotter than expected. That's leading people to bring the Federal Reserve back on the table for the June meeting."
In its statement last month, the Fed omitted previous language that "global economic and financial developments continue to pose risks," tacitly nodding to improvement in financial markets, and instead said officials will "closely monitor" such developments. Policy makers also reiterated in April that they will probably raise rates at a gradual pace. Since the conclusion of the Fed's meeting on April 27, the S&P 500 is down about 2.3 per cent.
Traders are pricing in a 14 per cent chance of higher borrowing costs in June, up from 4 per cent on Monday, while wagers for a July move jumped to 31 per cent from 16 percent last week. September is now the first month with at least even odds of higher rates after such bets had been pushed out to February as recently as a week ago.
Stocks yesterday erased Monday's rally after data on housing starts and the cost of living topped forecasts, and two Fed presidents said at least two rate raises may be warranted this year. That spurred concerns borrowing costs could rise sooner than expected even as global growth languishes.
Goldman Sachs Group Inc. downgraded equities to neutral, saying they don't look attractive unless companies post sustained earnings growth. The S&P 500 has fallen for three straight weeks, the longest stretch since January, after a 15 per cent rally from a 22-month low in February lost traction amid a tepid earnings season and lukewarm economic data.
As the earnings season draws to a close, Cisco Systems Inc. and Urban Outfitters Inc. are among those releasing results today. Of the S&P 500 firms that have already done so, 75 per cent beat profit estimates, while 54 per cent surpassed sales predictions. Analysts have moderated forecasts for a first-quarter profit decline to 7.4 per cent, from 10 per cent in April.