US open: Stronger dollar takes its toll

By Sharecast News

Sharecast News | 15 Jun, 2017

19:55 29/04/24

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Wall Street's main market gauges continued to pull back, with a stronger dollar in the wake of Wednesday's Fed policy decision taking its toll on commodity-related stocks alongside renewed falls in the largest big-cap tech names, the so-called FANG contingent.

At 1551 BST, the Dow Jones Industrial Average was down by 0.38% or 82.61 points at 21,290.23, while the S&P 500 was off by 0.68% to 2,421.29.

However, the biggest decline was reserved for technology stocks, with the Nasdaq-100 retreating 1.29% to 5,653.37.

On Wednesday, the Federal Reserve lifted interest rates for the second time this year by 25 basis points to between 1 and 1.25%, as expected, with Chair Janet Yellen reiterating that inflation is expected to return to target and forecasting one more hike this year. However, she added that policymakers will be watching low inflation numbers closely after some disappointing readings.

Ahead of the announcement, futures markets were discounting just even odds of one more rate hike in 2017, especially following a tame inflation report for May.

Some investors were also surprised by the Fed's plans to shrink its $4.5trn balance sheet.

FXTM research analyst Lukman Otunuga said: "Financial markets were caught completely off guard during late trading on Wednesday after the Federal Reserve adopted a firmly hawkish stance and even displayed some optimism over economic growth despite mounting concerns over weak inflation. The tone of caution investors were anticipating from the Fed was replaced by a strong determination to continue tightening in response to falling employment while accepting the prolonged periods of weak inflation this year.

"Although the hawkish surprise offered a temporary boost to the dollar, markets have not bought into this newfound optimism as expectations of another interest rate increase in 2017 currently stand below 50%."

Against that backdrop, the spot US dollar index rose 0.57% to 97.49.

US economic data out on Thursday was a tad mixed, with industrial production figures for May printing slightly below analysts forecasts even as the widely-followed Philly Fed factory gauge for June beat expectations slightly.

"Manufacturing sentiment points to continued improvement in near-term activity due to better fundamentals, improving global growth, elevated equity prices and more efficient oil and gas firms. Developments on the fiscal reform front will determine the trajectory of activity in the medium term," said Roiana Reid at Berenberg Capital Markets following the releases.

From a sector stand-point, the biggest losses were being seen in the following industrial groups: Iron&Steel (-5.02%), Food Retailers (-4.46%) and Industrial Metals (-3.53%).

In company specific news, shares in supermarket operator Kroger plummeted following its first quarter numbers and were on track for their largest one-day drop since 1999.

Toy-maker Mattel was also under the cosh after taxing an axe to its dividend.

Dow Jones - Risers

Travelers Company Inc. (TRV) $128.91 0.74%
Pfizer Inc. (PFE) $32.83 0.43%
Verizon Communications Inc. (VZ) $46.81 0.26%
Boeing Co. (BA) $192.77 0.20%
Caterpillar Inc. (CAT) $104.89 0.17%
Procter & Gamble Co. (PG) $88.59 0.17%
International Business Machines Corp. (IBM) $154.06 0.16%
Johnson & Johnson (JNJ) $132.75 -0.01%
United Technologies Corp. (UTX) $119.99 -0.02%
3M Co. (MMM) $209.69 -0.15%