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There’s nothing that affects the US stock market more at the moment than hints from the Fed on the future of its monetary stimulus.
Yesterday we had comments from New York Fed President William Dudley suggesting the FOMC might continue stimulus for longer if economic data does not meet their forecasts.
Today though Jeremy Stein, a voting member of the FOMC like Mr Dudley, seemed to suggest the September meeting could be a key point for a decision on tapering.
‘The best approach is for the committee to be clear that in making a decision in, say, September, it will give primary weight to the large stock of news that has accumulated since the inception of the program and will not be unduly influenced by whatever data releases arrive in the few weeks before the meeting,’ he said.
This down-playing of the soft economic data seen in recent weeks, has got investors nervous again that the Fed may be ready to taper in the next few FOMC meetings. The Dow Jones was down 0.3% at 14980 by early afternoon in New York, while the S&P 500 was down just 0.07% at 1612.
Jeffrey Lacker, President of the Richmond Fed, added weight to the view that the September meeting is being considered for introducing tapering, saying that it ‘is certainly a candidate" for when stimulus could be scaled back, though he echoed Dudley’s view yesterday that any decision was dependent on economic data.
The trouble is that rather than one clear message coming through from the Fed, we are hearing multiple versions with slightly different perspectives. The intention is to add clarity, but the result is actually the opposite, with market participants often choosing to hear what they want.
The consistent thread that I see is that the decision to taper is data dependent. Loogically this would suggest that the decision to taper in September or October or whenever cannot have been even pencilled in yet, yet this does not jibe with some of the comments made today.
On the data front, the Institute for Supply Management (ISM) reported that its Chicago Purchasing Managers Index fell to 51.6 in June, far worse than had been expected and a big drop from May’s 58.7. The final reading of the University of Michigan’s index of consumer sentiment improved to 84.1 from the mid-month preliminary reading of 82.7.
The gold price has bounced back to $1225 per troy ounce today, after breaking below $1200 briefly yesterday, but a 2% gain is slight in the context of the 14% of value that has been shed in just the last two weeks.