US Markets Lower Ahead of FOMC Minutes

U.S. futures are lower ahead of the open on Thursday, tracking losses in Asia and Europe, as investors look ahead to the release of last month’s FOMC minutes, as well as the latest Bank of England decision and minutes, and minutes from last month’s European Central Bank meeting.

We appear to be seeing some profit taking from investors following a very positive week of trading. The latest spark came from last week’s jobs report which in the eyes of many, appears to have been the final nail in the coffin for a rate hike this year, although that is debatable. Fed Funds futures are now pricing in only a 5% chance of a rate hike in October and less than 40% this year, despite no change in rhetoric from the Fed itself.

We’ll have to wait a few weeks for the next decision from the Fed but I’m sure close attention will be paid to comments from policy makers in the meantime. Later on today we’ll hear from John Williams, President of the Federal Reserve Bank of San Francisco and voting member on the FOMC. His comments are likely to be heavily scrutinized for signs that the support for a hike is growing. Recent comments from Williams suggest that he is comfortable on the employment front but that more needs to be done in terms of communication. This is very hard to argue given that the Fed has claimed a rate hike will come this year and yet markets are pricing in March next year.

While the minutes released today are a few weeks old and we’ve had some disappointing data in that time, most notably trade and labour market data, they are still extremely relevant and I think that’s why we’re now seeing profit taking. If the markets benefited from poor data on Friday, then the path of least resistance would appear to be to the upside again as any further suggestion that this year is no longer the right time to hike could possibly be taken in the same way. That said, a more hawkish Fed could be taken badly although it’s likely to be argued that the recent data did not factor into their views.

Prior to the open on Wall Street, attention will be on the BoE and ECB, with the former announcing its latest policy decision and both releasing minutes for the latest meetings. No change is expected from the BoE but the minutes could providing interesting insight into the current opinion of policy makers on the U.K. economy and the impact that external factors are likely to have on it. This could determine when the central bank decides to act. Given that the BoE and Fed are in very similar situations, the minutes may also be tracked by Fed watchers as the analysis could be broadly similar.

The minutes from the ECB will also be key with the central banks current monetary policy doing little to deliver inflation to the region. The eurozone fell back into deflation territory last month so it’s now down to the ECB to fight back. This could come in the form of extending its current asset purchase program beyond September next year, increasing the number of asset purchases or the more unlikely option of further deposit rate cuts. Any of the above could drive further weakness in the euro which could alleviate some of the pressures on the euro area.

The S&P is expected to open 5 points lower, the Dow 64 points lower and the Nasdaq 13 points lower.

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