Fed looks unlikely to hike next week after Brainard warning

Financials fell 0.11 per cent, the only decliner among the 10 major S&P 500 sectors, as traders trimmed the chances of a rate hike in September to 21 per cent from 24 per cent earlier in the day.

Pedestrians walk past an American flag displayed outside of the New York Stock Exchange in New York, the USA, on Monday.

Prior to the rally in USA bonds, other markets have seen further increases in yields, with Germany’s 10-year rate up 3 bps to 0.035%, its highest close since the Brexit vote and Japan’s 10-year rate continues to rise towards positive territory, closing at minus 0.01%.

North American stock markets rallied Monday after a U.S. Federal Reserve official hinted that the central bank remains cautious about interest rate hikes. She basically suggested that there should not be an interest rate increase for the next few quarters at least until inflation levels are at the desired level of 2% and she doesn’t expect that for a few more quarters, which puts us into the middle of 2017.

Brainard used the plural “months” to indicate how much more economic data she wants to monitor, a key suggestion according to Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management in Menomonee Falls, Wisconsin.

US stocks racked up their strongest gain in two months on Monday after Federal Reserve Board Governor Lael Brainard stuck to her dovish stance on interest rates and urged caution about removing monetary stimulus too quickly.

European stocks ended down 1 percent, cutting an earlier loss in half. Trade was choppy in the wake of Brainard’s remarks. Some thought she might move to the center and signal a rate hike in September.

69 yen in NY late Friday but still up from 102.

Wall Street also got a boost from Apple’s 1.5 per cent rise after having fallen for two straight days.

“I think circumstances call for a lively discussion next week”, said Atlanta Fed President Dennis Lockhart, who will not be a voter at next week’s policy review but will participate in discussions.

The US dollar held to some of its recent gains with currencies other than the yen, as there were some in the market that speculated that the Fed could raise interest rates as soon as its September 20/21 meeting. Hong Kong’s Hang Seng .HSI rose 1.1 percent and Shanghai .SSEC was flat.

-William Watts and Mark DeCambre contributed to this article.

OVERSEAS: Germany’s DAX was down 1.3 percent while the CAC-40 in France also fell 1.2 percent.

“China is undergoing a challenging transition from a growth model based on investment, exports, and debt-fueled state-owned enterprises to one driven by consumption, services, and dynamic private businesses”, she said.