While you were sleeping: US rate hike rethink

Wall Street fell, while US Treasuries rose, after minutes from the July Federal Reserve meeting suggest US policy makers might not raise interest rates next month.

"Most [participants] believe conditions for policy firming have not yet been achieved, but they noted conditions are approaching that point," according to minutes from the Federal Open Market Committee's July 28-29 meeting, released yesterday.

"Participants observed the labour market has improved notably since early this year, but many see scope for some further improvement," the minutes show.

"It was also noted a prompt start to normalisation will likely convey the committee's confidence in prospects for the economy," say the minutes.

Most analysts interpreted the Fed's comments as suggesting a September rate hike may be off the table.

"The Fed is backing off from September," Mitsubishi UFJ Securities USA director of US rate strategy John Herrmann told Bloomberg. "They are still saying they have not seen enough."

September federal funds futures imply traders expect a 45% chance of the Fed raising rates in September, while likelihood of a December rate increase held steady at 73% according to CME Group's FedWatch programme, Reuters reported.

Futures show traders see about a 38% chance the Fed will raise its benchmark rate at its September 16-17 meeting, down from about 50% earlier in the day, according to Bloomberg.

Not everyone agreed, however.

"Rate hike in September. Financial conditions not economic conditions a priority. That means they begin to normalise despite data," Bill Gross of Janus Capital Group says in a tweet.

Wall Street held to earlier losses. In late trading in New York, the Dow Jones Industrial Average fell 0.8%, the Standard & Poor's 500 Index weakened 0.4%, while the Nasdaq Composite Index shed 0.3%.

Declines in shares of Chevron and those of Exxon Mobil, down 2.5% and 1.6% respectively, led the Dow lower.

Oil dropped 4% after Energy Information Administration data showed a surprise gain in US crude inventories, which rose by 2.6 million barrels to 456.21 million last week.

"The numbers were a total surprise with crude showing a build when the whole street was forecasting a draw," New York-based Tyche Capital Advisors managing member Tariq Zahir told Reuters.

US Treasuries gained, pushing yields on the benchmark 10-year note four basis points lower to 2.15%.

In Europe, the Stoxx 600 Index finished the day with a 1.8% slide from the previous close. France's CAC 40 Index shed 1.8%, while the UK's FTSE 100 Index dropped 1.9%, and Germany's DAX Index sank 2.1%.

Shares of Glencore plunged 9.7% to a record low after the company reported a drop in profit, while shares of Carlsberg sank 9.2% after the company posted profit that failed to meet expectations.

(BusinessDesk)