US stocks ended lower on Monday on concerns Federal Reserve may hike interest rates in June instead of later in the year as market participants currently anticipate. The dollar weakened with yen strengthening after Japan’s April trade surplus at 823.5 billion yen exceeded expectations: the live dollar index data indicate the ICE US Dollar Index, a measure of the dollar’s value against a basket of six major currencies, slipped 0.2% to 95.21. The Dow Jones Industrial Average closed 0.05% lower at 17492.93 led by Microsoft (NASDAQ:MSFT) and Verizon (NYSE:VZ) shares. The S&P 500 fell 0.2% to 2048.04, the second loss in the past three sessions as a 1.2% rise in materials shares failed to offset losses in utilities and energy shares, down 1% and 0.3% respectively. The Nasdaq Composite Index fell 0.1% to 4765.78. Investors are concerned that Federal Reserve will move to raise interest rates in June after the release of surprisingly hawkish minutes of FOMC April meeting last Wednesday and recent comments by several Fed officials that markets are not pricing appropriately coming rate hikes. On Monday Philadelphia Fed President Patrick Harker said a hike in June is appropriate unless economic data weaken. St. Louis Fed President James Bullard said holding rates too low for too long could cause financial instability when the strength of the US labor market, higher inflation edging closer to the Federal Reserve’s target of 2% and easing international pressures justify raising rates. Investors are concerned higher borrowing costs will hamper US companies’ expansion opportunities thus lowering their growth outlook. As a result equities are falling with S&P 500 trading at about 16.4 times expected earnings, down from about 17 at the start of May. Trading was thin with just 5.9 billion shares sold on US exchanges, about 18% below the average trading volume for the past 20 trading days. Today at 16:00 CET April New Home Sales will be released. The tentative outlook is positive.
European stocks ended lower on Monday weighed by the Deutsche Bank’s downgrade of European equity market’s 2016 prospect and losses in Bayer (DE:BAYGN) and Fiat Chrysler Automobiles (NYSE:FCAU) shares. The euro was little changed against the dollar after pairing losses following a Markit preliminary report euro-zone composite purchasing managers index fell to 52.9 from 53 in April instead of an expected rise. The Stoxx Europe 600 closed down 0.5%. Fiat Chrysler Automobiles shares dropped 4.4% on reports that German regulators suspect the auto maker of using illegal software to cheat on emissions tests. German DAX 30 index fell 0.7% to 9842.29, weighed by 5.7% slump in Bayer shares on news the chemicals giant made an all-cash offer to buy Monsanto (NYSE:MON) for $62 billion. France's CAC 40 fell 0.7%, UK’s FTSE 100 index lost 0.3%. Today at 10:30 CET April Public Sector Net Borrowing will be released in UK. The tentative outlook is negative for Pound. At 11:00 CET May ZEW Economic Sentiment index for Germany and euro-zone will be published. The tentative outlook is positive for euro.
Asian stocks are retreating today as commodity prices decline on the back of stronger dollar with MSCI's broadest index of Asia-Pacific shares outside Japan down 0.8%. Nikkei fell 0.9% today as investors lowered their expectations Japan may act to weaken yen after the United States warned last week against intervention and Japanese Finance Minister Taro Aso said today Japan has no intention to devalue the yen.
Oil futures prices are extending losses today as the dollar strengthens. Prices declined yesterday for the second straight session, July West Texas Intermediate crude fell 0.7% to one week low of $48.08 a barrel on the New York Mercantile Exchange. Analysts note the bearish effect of no fall in the number of rigs drilling for oil in the US last week reported by Baker Hughes as well as easing of oil outage concerns as wildfires in Canada appear under control with rainfalls in recent days.