US futures take a breather on Bullard rate warning

US futures take a breather on Bullard rate warning

By Craig Erlam on Jun 30, 2014 08:13:03 GMT

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  • Markets take a breather on Bullard interest rate warning;
  • Juncker to be appointed European Commission President, despite Cameron objections;
  • UK GDP misses expectations but still shows 3% growth;
  • US consumer sentiment in focus.

European indices and their US counterparts are not on the same page this morning, thanks largely to the interest rate warning from one of the typically more dovish members of the Fed.

Last night’s comments from James Bullard, who is not currently a voting member of the FOMC, were not very well received by US investors. This is hardly a surprise when you consider that one of the main factors behind the rally in the US is the low interest rate environment that we currently find ourselves in.

Bullard may not be a voting member of the FOMC, but he is usually considered dovish which may suggest that other members are also leaning towards an earlier rate hike than is currently priced in. The comments may not have been welcomed but they can’t be viewed as a surprise when the Bank of England has already warned that it may raise them later this year and the US recovery has been strong in the second quarter.

While Bullard’s views made equity investors a little uncomfortable, the same can’t necessarily be said of those in the fixed income space. US 10-year Treasury yields continued to fall, regardless of Bullard’s comments, and have fallen further today. This does not suggest that investors are too concerned about an early rate hike quite yet, it’s probably more of a sign that it doesn’t take much to frighten equity traders at these levels.

Over in Europe, a key focus today has been the imminent appointment of Jean-Claude Juncker as the new European Commission President. David Cameron’s efforts to block the appointment appear to have failed miserably which while being humiliating for the UK Prime Minister, may well be a bigger concern for the European project. Cameron’s main objection to the appointment has been built on the view that Juncker does not favour reform in the EU and instead targets further European integration. Given the problems faced by the eurozone in recent years, this does not fill me with hope. That said, Cameron clearly has his own political agenda ahead of next year’s election so it’s no surprise that his concerns are falling on deaf ears.

The economic data released already today has been a little mixed with the UK GDP revision marginally missing expectations, but still reaching 3%, year on year. This is still encouraging. The sentiment indicators for the eurozone were also mostly lower than expected but this has clearly not had much of an impact on investor sentiment today.

In the US< it’s looking like a quiet day on the data front, with the UoM consumer sentiment reading the only notable release. This is expected to be revised marginally higher to 82 for June, from 81.9 previously.

Ahead of the opening bell on Wall Street, the S&P is expected to open 5 points lower, the Dow 26 points lower and the Nasdaq 7 points lower.

About Craig Erlam

Craig Erlam is Market Analyst at Alpari UK. He joined Alpari (UK) at the beginning of 2012 after four years in the financial services industry, including working at Goldman Sachs. Craig writes market commentary that regularly appears on websites including The Financial Times, Reuters, BBC, The Telegraph and FOX Business. He also provides insight and analysis for clients which he posts daily on Twitter, Google+ and the Alpari (UK) website. You can also find Craig on YouTube where he gives short market updates, including charting analysis.

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