US stocks ended lower for the fifth session on Wednesday after the Federal Open Market Committee left the interest rates unchanged and indicated a more gradual pace for future rate hikes. The dovish statement of the central bank failed to boost investor confidence sufficiently to overcome the risk-off stance which persisted in recent days after selloffs spurred by increased uncertainty ahead of central bank meetings and UK referendum. Federal Reserve lowered its 2016 economic growth outlook to 2% from 2.2% while stating that the growth in economic activity appears to have picked up though pace of improvement in the labor market has slowed. Policy makers now project two rate hikes this year according to the dot plot, and also lowered expectations for the pace of rate hikes to three interest rate increases in 2017 and 2018 instead of four hikes in both years. This resulted in increased demand for Treasury bonds, lowering bond yields: the yield on the 10-Year US Treasury note fell 2.4 basis points to 1.586%, its lowest level since November 2012.
The dollar weakened as central bank statement omitted any reference to a possible summer rate hike. 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, slid 0.3% to 94.577. The Dow Jones Industrial Average slipped 0.2% to 17640.17 led by 1.7% fall in Intel (NASDAQ:INTC) stocks. The S&P 500 closed 0.2% lower at 2071.50. Other economic data were mostly positive: manufacturing activity in the New York area rebounded in June, and the 0.4% rise in May producer prices was stronger than expected while industrial production contracted in May. Today at 14:30 CET initial jobless claims and unemployment claims, Philadelphia Fed Manufacturing Index for June and inflation for May will be released in US. The unemployment claims are expected to rise, the Philadelphia Fed Manufacturing Index is forecast to rise to plus 2 from negative 1.8 in May. The headline inflation is expected to remain unchanged at 1.1%.
European stocks advanced on Wednesday breaking five session losing streak with gains in banking and commodity stocks leading the market higher. The euro strengthened against the dollar helped by increase in euro-zone trade surplus in April as exports rose. The Stoxx Europe 600 closed up 1%. Miners advanced with Glencore (LON:GLEN) PLC jumping 6.5%. German DAX 30 stock index rose 0.9% to 9606.71. France’s CAC 40 gained 1% and UK’s FTSE 100 closed up 0.7%. Today at 10:30 CET May Retail Sales will be released in UK. The tentative outlook is negative. At 11:00 CET the final reading of May Consumer Price Inflation will be released in euro-zone. The tentative outlook is neutral. At 13:00 CET Bank of England Rate Decision will be released. The bank is expected to leave the interest rate unchanged at 0.5%.
Asian stocks are retreating today after the Bank of Japan decided to leave the interest rate unchanged and didn’t expand the program of asset purchases, choosing to leave the options open for action in case the UK leaves the European Union after June 23 referendum. Nikkei fell 3.1% to four month low of 15434.14 as yen hit 104 yen per dollar, its highest level in almost two years. Exporters were hit hard with Toyota Motor Corp Ltd Ord (T:7203) down 3.3% and Panasonic Corp. (T:6752) tumbling 3.9%.
Oil futures prices are declining today after five losing sessions in a row. Investors are concerned about consequences of possible UK exit from EU. Lower than expected drop in US crude oil stockpiles also weighs on crude demand outlook. The Energy Information Administration reported US crude inventories fell by 933 thousand barrels in the last week, less than half the expected 2.3 million barrel decrease. August Brent crude fell 1.7% to $48.97 a barrel on London’s ICE Futures exchange yesterday.