U.S. Markets Lack Direction On Confused Fed Messages

Despite making new record highs this month, US markets have struggled to push on, capped by concerns about valuations as well as mixed comments from a number of Fed officials in recent days about the future direction of monetary policy.

It has become clear in recent days that Fed officials are increasingly divided over the timing of when to move on rates next, and their constant briefings to the market aren’t helping in this regard, which probably explains why US markets have struggled for direction in the past few weeks.

Last week’s FOMC minutes reinforced the nature of these divisions, as have recent comments from William Dudley, New York Fed President and John Williams at the San Francisco Fed.

Over the weekend Federal Reserve vice Chairman Stanley Fischer, who tends to be one of the more hawkish Fed members, was quoted as saying that the central bank was close to meeting its inflation and employment targets.

Unfortunately for Mr Fischer this has been the case for most of this year and yet the Fed has failed to act, so his intervention doesn’t really add to the overall debate, particularly since he stated at the beginning of this year that four rate rises this year was very much in the “ball park”. Yet here we are heading into September and we’ve yet to see one. Is it any wonder the markets look at the Fed and shrug?

In company news, reports that US pharmaceutical giant Pfizer (NYSE:PFE) is bidding $14bn for Medivation (NASDAQ:MDVN), a small California-based cancer drug maker, has seen a rally in equivalent sector shares in early trading in Europe.

It’s not the first time Medivation has been courted by its larger peers, with Sanofi (NYSE:SNY) also previously interested. It’s likely that today’s reports could well trigger speculation about further M&A in the sector.

Housing stocks have also enjoyed a bit of a pickup as they continue to shrug off their post Brexit hangover and recover some of the losses seen in the aftermath of the June “Brexit” vote, with Taylor Wimpey (LON:TW), Berkeley Group (LON:BKGH) and Barratt Developments (LON:BDEV) leading the way.

On the downside, mining stocks have slid back as gold and silver prices have come under pressure on a stronger US dollar, with Fresnillo (LON:FRES) and Randgold Resources (LON:RRS) the biggest losers.

Oil prices have also come under pressure after failing to hold on to the $50 a barrel mark, prompted in some part by Iraq’s announcement that it will increase exports by 5% in the next few days, while US rig counts increased again at the end of last week by another 10 to 491. The stronger US dollar is also helping pull it back lower.

The Dow Jones is expected to open 23 points higher at 18,575

The S&P 500 is expected to open 2 points higher at 2,186

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