Stocks Shudder on Hike Talk, Tech Downgrade

The only thing the stock market likes less than the prospect of a rate hike is the prospect of a rate hike in a softer economy. The Nasdaq posted its worst day in 11 months Wednesday following a downgrade of semiconductor maker AMD as the euro led and the kiwi lagged. The Asia-Pacific calendar is quiet. EURGBP Premium trade is open ahead of tomorrow's UK retail sales.

Atlanta Fed President Lockhart said it's quite likely that rates will rise in September or sooner. He said the FOMC would need to be “really disappointed” in the economic data to wait longer with something close to an economic shock the only way hikes could be derailed beyond year end.

We mulled the prospect of the Fed waiting beyond year end yesterday but that sounds less likely in light of Lockhart's comments. It seems even with soft economic data, the Fed wants to get away from zero interest rates.

And soft data was what came on Wednesday as core Feb durable goods orders fell 1.4% compared to +0.3% expected. It was compounded by a revision in the January reading to -0.1% from +0.6%. It makes six consecutive months of declines in the core capex reading which is a prominent leading indicator.

The stock market groaned and gave up all the post-FOMC gains. The S&P 500 was down 1.5% and Nasdaq down 2.4% in the largest loss since April 10, 2014.

The US dollar generally strengthened although gains against the euro and yen were minimal after the comments and data. One factor that points to repositioning rather than true fear is the upcoming end of the quarter/fiscal year. That bonds sold off alongside stocks and that FX was relatively unshaken argues for calm but there is definitely apprehension about soft Q1 earnings due to the US dollar and that may continue to weigh.

Geopolitics are also back on the agenda. Oil brushed off another high inventory report and instead focused on Yemen where rebels chased the President from the Southern capital of Aden and looters ransacked the Presidential compound. There is talk of an increasing military buildup along the border with Saudi Arabia and oil prices rose more than 3%.

The market will have a chance to digest the latest moves with the schedule quiet in Asian trading.