Wall St slips on Fed rate hike hints

The ASX is set for a weaker start after US stocks edged back from historical highs on interest rate talk.

US stocks pulled back from a record high after mixed hints on interest rates from Fed officials. Picture: AP Photo/Seth Wenig.

US stocks edged back from historical highs overnight and government bonds retreated following mixed signals from Federal Reserve officials about the course of interest rates.

European shares also fell as analysts took local data that appeared to show investors and consumers shrugging off the Brexit vote with a grain of salt.

The Australian share market is set to follow the weak global leads, with ASX futures down 8 points at 6.30am (AEST).

The Dow Jones Industrial Average fell 84 points, or 0.5 per cent, to 18552, while the S&P 500 declined 0.6 per cent and the Nasdaq Composite Index lost 0.7 per cent.

Treasury yields rose after New York Fed President William Dudley said in a television interview that the economy should strengthen later in the year and that the US presidential race won’t affect the Fed’s decisions on the course of rates. The Fed on Wednesday is scheduled to release minutes of its most recent meeting.

The dollar fell to its lowest level since June, however, after a paper released by Federal Reserve Bank of San Francisco President John Williams suggested a possible increase to the inflation target, which would give the bank room to keep rates lower for longer.

Data released on Tuesday showed US consumer prices were flat in July, a signal that inflation remains modest. The yield on the benchmark 10-year Treasury note was 1.576 per cent, according to TradeWeb, compared with 1.554 per cent on Monday. Yields rise as prices fall.

Stocks sensitive to changes in interest rates, such as telecommunications companies, were among the biggest decliners in the S&P 500. Verizon Communications was among the biggest decliners in the Dow industrials, losing 1.6 per cent.

Following a slow summer climb in stock markets, some investors are growing wary of the recent rally, as the gains have come without an increase in corporate earnings growth, which many expect later in the year.

“Profit growth will be necessary to drive the market higher from here, but while we wait for that, we’ll probably consolidate the recent gains we’ve had,” said Matthew Peron, head of global equity at Northern Trust.

But many suggest a lack of alternatives and ultra-supportive central bank policy should keep investors in the stock market even if earnings disappoint, with ultralow and negative rates around the world forcing investors toward risky assets, including stocks.

Bank of America’s monthly fund manager survey showed on Tuesday that fewer managers are taking out protection against a sharp fall in stock markets in the next three months, while hedge fund exposure to equities has climbed to its highest in a year.

For investors, “the focus seems to be on the heavy lifting that is being done by monetary policy,” said Koen Straetmans, a multiasset strategist at NN Investment Partners.

Energy companies gained as the price of US crude rose 1.8 per cent to $US46.58 a barrel.

Shares of Volkswagen slipped 2.5 per cent following reports that US prosecutors and Volkswagen AG are negotiating a settlement after the Justice Department found evidence of criminal wrongdoing in the car company’s diesel-emissions cheating.

Markets in Europe and Japan fell 0.8 per cent and 1.6 per cent, respectively, as a weaker dollar dragged down shares of global exporters.

The euro was up 0.9 per cent against the dollar at $US1.1277, while the dollar recently was down 0.9 per cent against the yen to Yen100.2730, passing 100 yen to the dollar for the first time since the UK’s vote to exit the European Union. Analysts said thin trading volumes and stop-loss orders exaggerated the yen’s ascent.

Meanwhile, the British pound rose 1.2 per cent against the dollar to $US1.3038. UK inflation figures narrowly beat expectations, giving sterling a boost after falling to three-decade lows on Monday.

The Shanghai Composite Index fell 0.5 per cent, as investors sold shares of banks and insurance companies, while Hong Kong’s Hang Seng Index closed down 0.1 per cent.

Dow Jones