Tuesday was a poor day for the stock market, with the Dow Jones and S&P 500 both suffering large slides against a backdrop of US dollar-strength and speculation over how soon the Fed might hike rates.
By Peter Martin
Wednesday, March 11, 2015
Nothing has changed with those issues and anyone looking for a rebound will have been disappointed by Wednesday’s performance, as an underwhelming bounce in the morning disappeared in the afternoon, leaving stocks once again in the red.
By early afternoon in New York, the Dow Jones was down 10 points or 0.06% at 17,652, while the S&P 500 dipped to 0.11% to 2041.9.
The Fed convenes next Tuesday for the start of the two-day March FOMC meeting and once again, as far as investors are concerned, the crux of the issue may all boil down to whether the word ‘patient’ remains in the official statement or not. Fed Chair Janet Yellen, in her Congressional Testimony last month, revealed that that word would be removed from the Fed’s forward guidance before a rate-hike would be considered. Many have seized on her mentioning of ‘a couple of meetings’ after that as indicating a June rate hike if ‘patient’ disappears next week. Ms Yellen’s wording had an element of ambiguity, though, that make it difficult to draw any concrete conclusions as to timing. She said, ‘It is important to emphasize that a modification of the forward guidance should not be read as indicating that the committee will necessarily increase the target range in a couple of meetings.’
Nevertheless, the FX market has behaved as though expectations for a rate hike have been shortening, with the dollar once again making substantial gains against its commonly-traded peers. EUR/USD set new 12-year lows, plunging 1.35% to 1.0534 and parity suddenly doesn’t look a great distance away. The dollar has moved beyond parity with the Swiss franc, rising 1.01% to 1.0095, while GBP/USD fell 0.89% to 1.4920.
Along with the stock market, crude oil has been struggling this week, and the commodity’s losses increased today with a steep decline after the Energy Department released inventory data for last week. The US crude oil stockpile grew by 4.5 million barrels last week, following a 10.5 million-barrel build the week prior, which makes it the ninth consecutive increase in US supplies. The new total of 448.9 million barrels is the highest level in ‘at least the last 80 years’ for this time of year. Refinery activity eased to 87.6% of operable capacity from 88.2% in the week prior. US crude oil futures fell sharply in the wake of the report, plunging 2.0% by early afternoon to $47.40 a barrel.
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