Wall Street’s angst shifts back to Fed

August 19 02:59 2015

Second-quarter earnings season is winding down. The China currency scare, which spooked markets last week, now doesn’t seem quite as scary as it did last Tuesday after Beijing shocked markets by devaluing its currency to jump-start exports and boost growth. Also, many Wall Street traders are still at the beach in vacation mode rather than sitting in front of their trading terminals.635599310930669846-AP-FINANCIAL-MARKETS-WALL-STREET-70881114

Assuming the China syndrome storyline is petering out, Wall Street’s worry list will shift to the Federal Reserve and coming interest rate hikes, as well as incoming economic data on housing and inflation that could give the Fed the ammunition it needs to hike rates — or a good reason to say, “Let’s hold off until it’s more clear the time is right.” Putting the Fed in the spotlight this week is the release of the minutes of its late-July meeting on Wednesday.

Global markets were relatively quiet early Monday, with stocks higher in China, Japan and Europe and U.S. stock futures trading near the flatline. But that is likely to change mid-week, says Henry Skeoch of Barcalys. Fed chief Janet Yellen has been saying conditions in the U.S. economy and labor market are finally strong enough to start lifting borrowing costs for the first time in almost a decade, as the economy moves farther away from the dark days of the 2008 financial crisis.

Many Wall Street pros believe the Fed could increase rates as early as September, while others have theorized that recent market volatility overseas will give the Fed pause and push the first rate hike back to later in the year. Short-term rates have been pegged at roughly 0% by the Fed since late 2008 and have been widely credited for the stock market tripling in value since the market low in March 2009.

When the Fed minutes are released at 2 p.m. ET Wednesday Wall Street will be seeking clues as to what the Fed really is watching as it relates to its rate-hike timetable. Any hints that global market turbulence is moving up on the Fed’s worry list could gain added weight and potentially give the Fed reason to hold off on hikes, especially in light of China’s intervention in the currency markets, a move that could dampen global growth. Incoming data on consumer inflation, a key Fed data point, and July housing starts and existing home sales, also could also shed light on the Fed’s next move.

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