Wall Street stocks followed European and Asian bourses lower yesterday, retreating from record highs touched on Monday, after weak US data and comments by an influential Federal Reserve policymaker that the US central bank could raise interest rates as early as next month.
New York Fed President William Dudley’s statement seemed at odds with data released on the US economy Tuesday that showed consumer prices were unchanged in July as the cost of gasoline fell for the first time in five months and underlying inflation slowed.
The New York Fed also released a survey yesterday showing business confidence fell and activity in the region’s service sector declined significantly last month.
Generally that would diminish the prospect of rate increases this year but market participants seemed to believe the man more than the numbers. Fed funds futures prices showed traders raised bets on a rate hike before year-end to 51 per cent, up from 42 per cent on Monday, according to CME Group’s Fed Watch.
Mr Dudley, a permanent voter on rates and a close ally of Fed Chair Janet Yellen, gave the market-moving interview nine days before an annual meeting of top central bankers in Jackson Hole, Wyoming, a venue the Fed often uses to telegraph policy plans.
The Dow Jones industrial average fell 43.45 points, or 0.23 per cent, to 18,592.6, the S&P 500 lost 7.43 points, or 0.34 per cent, to 2,182.72 and the Nasdaq Composite dropped 24.41 points, or 0.46 per cent, to 5,237.61.
European shares retreated from seven-week highs, weighed down by industrial stocks, with markets in London, Paris and Frankfurt all about 0.5 per cent lower.
Chinese stocks pulled back from seven-month highs following a sharp fall in bank shares, and Japan’s Nikkei fell 1.62 per cent to its lowest in just over a week as the yen firmed.
A measure of stocks around the globe fell 0.2 per cent.
Mr Dudley’s comments also moved US Treasuries, with yields on two-year notes touching a near three-week high of 0.7580 per cent, as expectations for a rate hike prompted investors to sell shorter-dated Treasuries.
The dollar hit its lowest against the yen, the euro and the Swiss franc since June 24, the day after Britain voted to exit the European Union.
The euro rose more than one per cent against the dollar, while the dollar fell more than 1.5 per cent against the yen and more than one per cent against the Swiss franc.
Analysts attributed the dollar’s weakness to comments from San Francisco Fed President John Williams Monday afternoon.
But the dollar recouped some of its losses after Dudley’s comments. The dollar index, which measures the greenback against six major rivals, was last down 0.83 per cent at 94.836.
Oil prices reached their highest in more than five weeks in European trading as the market rode optimism over potential producer action to curb output, but those gains were largely erased after the weak US data.
Brent crude futures hit their highest point since July 7, but were last up 1.2 per cent to $48.93 per barrel.