Wall St inches up as Fed officials remain mixed on rates

The ASX is set for a modest positive open as Fed officials remain mixed on the timing of future rate hikes.

US stocks inched up as the minutes of the Fed’s July meeting showed mixed opinions on the path of future rate hikes. Picture: Drew Angerer/Getty Images/AFP.

US stocks ticked higher after the Federal Reserve released minutes from its July meeting that suggested the central bank could raise interest rates as soon as September, without hinting that a hike that soon was likely.

European stocks closed weaker ahead of the Fed release, although the London bourse had some support from encouraging jobs data.

The Australian share market is set to take Wall Street’s lead and open slightly higher, with SPI futures up three points at 6.25am (AEST).

The minutes, along with the July statement, suggested while a rate increase as early as September is a possibility, the Fed officials won’t commit to a move until they reach a stronger consensus about the outlook for growth, hiring and inflation.

Demand for US Treasurys increased, gold pared losses and the dollar weakened following the Fed minutes.

The Dow Jones Industrial Average gained 22 points, or 0.1 per cent, to 18574. Prior to the Fed minutes the blue-chip index was down 0.1 per cent. The S&P 500 added 0.2 per cent and the Nasdaq Composite was flat.

The WSJ Dollar Index, which measures the dollar against a basket of 16 currencies, slipped less than 0.1 per cent after the release of the Fed minutes. Earlier it rose 0.3 per cent after falling sharply in the previous session.

The yield on the 10-year US Treasury note was 1.558 per cent compared with 1.566 per cent before the release of the Fed minutes, according to Tradeweb. Yields move inversely to prices.

The market reaction illustrates how investors are still betting rates will remain at ultralow levels. Federal-fund futures pointed to a roughly 50 per cent chance of a rate increase by the end of the year, according to CME Group. Those chances remained steady following the release of the minutes.

“Given where unemployment is and where wage growth is, it wouldn’t take much to allow them to raise rates again,” said Jonathan Bell, chief investment officer at Stanhope Capital.

If interest rates start to rise, stocks and bonds could fall together, he said. Equity markets have risen to record highs not because of earnings growth, but because ultralow rates and quantitative easing have suppressed returns on bonds, making stocks look attractive in comparison, he added.

Recent comments from Fed officials have suggested the possibility of higher rates this year remains on the table. New York Fed President William Dudley said a rate increase as early as September is “possible,” supporting a rebound in the dollar.

Reserve Bank of Atlanta President Dennis Lockhart also said the economic data justified a “serious discussion of a rate increase.”

The Fed minutes showed officials are seeking to keep their options open, with some officials wanting a rate rise but others pushing for more information.

Bank of America’s monthly fund manager survey for August showed 25 per cent of investors think Treasury bond yields are the biggest driver of equity prices over the next six months.

But strategists at Deutsche Bank argued in a note Wednesday that stronger global economic momentum, rather than falling bond yields, have given stocks their latest lift.

The Stoxx Europe 600 reversed early gains to slip 0.8 per cent. Earlier, the Nikkei Stock Average led gains in Asia after Japanese authorities warned about the country’s soaring currency.

“If there are excessively sharp movements, we will have to take action,” said Vice Finance Minister for International Affairs Masatsugu Asakawa.

The dollar was recently little changed against the yen at Yen100.27 after the US currency touched its lowest afternoon trade level against the yen since 2013 on Tuesday.

Shanghai and Hong Kong stocks ended little changed, even after China set out plans to open up its equity markets by approving a stock-trading link between Hong Kong and Shenzhen.

The program is expected to launch within 2016, but analysts were skeptical over how attractive this link would be to foreign investors, who can already invest in China’s domestic markets through other prograMs

In commodities, US crude oil rose 0.5 per cent to $US46.79 a barrel. Gold shed 0.4 per cent to $US1,351.20 an ounce.

Dow Jones