Stock Market Today – 8/18: Stocks Edge Higher As Markets Parse Fed Minutes, Trim Big Rate Bets

Wall Street seems to be adopting a dovish take to the most recement Fed minutes Thursday, trimming bets on big rate hikes and pushing stocks modestly higher in pre-market trading.

U.S. equity futures edged higher Thursday, while the dollar held onto gains against its global peers, as investors picked through details of the Federal Reserve’s last policy meeting that suggest a hawkish approach to rate hikes heading into the final months of the year.

Minutes from the Fed’s July meeting indicated Chairman Jerome Powell and his colleagues will take a measured approached to their inflation fight, with data dependence trumping a pre-determined set of rate hikes, but nonetheless noted that inflation remains “uncomfortably high” in the world’s biggest economy despite the recent pullback in headline CPI.

The Fed will see two releases of PCE Price index data, its preferred inflation gauge, an August jobs report and another monthly CPI reading prior to its next interest rate decision on September 21.

“Some participants indicated that, once the policy rate had reached a sufficiently restrictive level, it likely would be appropriate to maintain that level for some time to ensure that inflation was firmly on a path back to 2%,” the minutes read. “Participants concurred that, in expeditiously raising the policy rate, the Committee was acting with resolve to lower inflation to 2% and anchor inflation expectations at levels consistent with that longer-run goal.”

Bets on another jumbo Fed rate hike in September fell to around 38.5% following yesterday’s minutes, down from around 50% last month, while 2-year Treasury bonds yields slipped 3 basis points to 3.285% in overnight trading.

Central banks around the world — at least beyond China — remain firmly in tightening mode, however, with Norway’s Norges Bank adding to the list Thursday following a 50 basis point rate hike that took its key policy rate to 1.75%, the highest in a decade.

With inflation surging in Europe, where harmonized consumer prices are rising at an 8.9% pace, the dollar is still holding onto recent gains against its rivals, with the dollar index marked 0.18% higher at 106.753.

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Europe’s benchmark Stoxx 600 was marked 0.29% higher in mid-day Frankfurt trading, following on from a weaker session in Asia that saw the region-wide MSCI ex-Japan index slip 0.54% into the close of trading.

On Wall Street, futures tied to the S&P 500 are indicating a 12 point opening bell gain while those liked to the Dow Jones Industrial Average are priced for an 85 point bump. Futures linked to the tech-focused Nasdaq are indicating a 60 point bump.

Housing data is back in focus following a weaker-than-expected reading for starts and permits earlier this week with new figures on existing home sales likely to confirm a big decline in transactions and demand.

With interest rates on the rise and mortgage rates following suit, new applications slumped lower this week, according to data from the Mortgage Banker’s Association, taking the average cost of payments for home buyers more than 50% higher from this time last year.

Existing home sales are likely to fall 5.4% from last month to an annualized rate of 4.89 million when the data is released at 10:00 am Eastern time, taking the total year-to-date decline to around 25%. 

Oil added to yesterday’s gains in overnight trading following Energy Department data that showed domestic crude stocks fell by 7.1 million barrels last week, as crude exports accelerated to around 5 million barrels per day.

WTI crude futures for September delivery were marked 87 cents higher at $89.10 per barrel while Brent contracts for October, the global benchmark, gained $1.28 to $94.96 per barrel.

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