[New York Stock Market] "June Rate Hike Opinions Emerge" FOMC Minutes Close Slightly Lower

The three major indices of the U.S. New York stock market closed slightly lower on the 5th (local time), digesting the minutes of the June Federal Open Market Committee (FOMC) meeting, where the interest rate was unanimously held steady but some hawkish members expressed opinions in favor of a hike. On the day the market resumed after the Independence Day holiday, investor sentiment was also dampened by earlier-than-expected weak Chinese service sector data.

At the New York Stock Exchange (NYSE) on this day, the Dow Jones Industrial Average closed at 34,288.64, down 129.83 points (0.38%) from the previous session. The large-cap-focused S&P 500 index fell 8.77 points (0.20%) to 4,446.82, and the tech-heavy Nasdaq index dropped 25.12 points (0.18%) to 13,791.65.

Within the S&P 500, telecommunications, utilities, and real estate sectors rose, while materials, industrials, energy, technology, and financial sectors declined. Meta Platforms closed up 2.92% ahead of the launch of 'Threads,' a new social media platform expected to rival Twitter. Threads, a text-based SNS linked with Instagram, is scheduled to launch on the 6th. However, its launch in the European Union (EU) has been postponed due to regulatory issues. Rivian rose more than 4% on news that it delivered electric delivery vans produced under Amazon's order to Europe. Moderna gained over 1% on news of an imminent investment agreement with China. Transocean jumped more than 5% after Citigroup upgraded its investment rating.

On the other hand, Coinbase fell nearly 2% after Piper Sandler downgraded its investment rating. Delivery company UPS also dropped over 2% amid increased strike risks due to failed labor wage negotiations. With U.S. Treasury Secretary Janet Yellen's visit to China drawing attention to semiconductor and cloud regulation discussions, semiconductor stocks including Intel and AMD showed weakness.

[Image source=Reuters Yonhap News]

Investors entered the second half of the year’s trading in earnest after the Independence Day holiday, focusing on the June FOMC minutes and weaker-than-expected Chinese economic indicators. Greg Basak, CEO of AXS Investment, told CNBC, "There is no doubt that the Fed’s interest rate policy is driving investors’ thinking about the market and economic trajectory in the second half of the year."

The June FOMC minutes released that afternoon reaffirmed the message that additional rate hikes are expected within the year. Regarding the unanimous rate hold decision in June, the minutes stated, "Almost all participants judged that it was appropriate or acceptable to hold rates steady in June, considering how quickly the Fed raised rates last year and that it takes time for such moves to affect economic conditions."

However, it was also confirmed that some hawkish members expressed opinions in favor of a rate hike at that time. Some attendees said they "could prefer or support a 0.25 percentage point increase." They pointed out that "economic activity momentum was stronger than previously expected, and there were hardly any clear signs that inflation was moving toward the 2% target."

Accordingly, FOMC participants chose to hold rates steady to assess the cumulative effects of tightening, while clearly signaling through the dot plot that the fight against inflation is not over. Previously, the Fed raised the year-end rate forecast on the dot plot from 5.1% (median) to 5.6%. This suggests that two baby steps (0.25 percentage point hikes) could occur in the remaining four meetings this year. Of the 18 FOMC members, all but two expected additional hikes by year-end. Among them, 12 anticipated two or more rate increases.

Market consensus favors a rate hike resuming this month. According to the Chicago Mercantile Exchange (CME) FedWatch tool, the federal funds (FF) futures market currently prices in nearly an 89% chance of a baby step hike in July.

Following the release of the FOMC minutes, tightening expectations strengthened, pushing bond yields higher. In the New York bond market, the 10-year Treasury yield rose to around 3.93%, and the 2-year Treasury yield, sensitive to monetary policy, climbed to about 4.95%. The dollar index, which measures the dollar’s value against six major currencies, increased 0.3% to 103.3.

Investors are now focusing on the June employment data to be released later this week. The key report is the employment report scheduled for the 7th. Wall Street estimates that nonfarm payrolls increased by 240,000 in June compared to the previous month. The unemployment rate is expected to be 3.6% for June. Prior to that, on the 6th, the ADP private employment report and the Job Openings and Labor Turnover Survey (JOLTs) will also be released. If employment data come in stronger than expected, tightening expectations surrounding the Fed are likely to intensify.

The U.S. factory orders for May, released on this day, were weak. According to the U.S. Department of Commerce, factory orders in May rose 0.3% month-over-month, falling short of market expectations of 0.6%. Earlier released Chinese service sector economic data fell far below expectations, reminding investors once again of concerns about economic slowdown. Honey Redha, manager at PineBridge Investments, said, "China still plays a very important role in growth, so it has global ripple effects."

International oil prices rose. On the New York Mercantile Exchange, August delivery West Texas Intermediate (WTI) crude oil closed at $71.79 per barrel, up $2.00 (2.87%) from the previous session.