US open: Stocks fall as hawkish FOMC minutes continue to weigh

US stocks declined on Thursday as investors continued to digest the Federal Reserve’s hawkish policy meeting minutes.

The Dow Jones Industrial Average dropped 0.82%, the S&P 500 fell 0.80% and the Nasdaq shed 0.87% at 1527 BST.

Minutes from the latest Federal Open Market Committee released on Wednesday revealed that an interest-rate hike in June was a possibility, with a number of participants already angling for an increase at the April meeting.

The key phrase in the minutes was that “most participants judged that if incoming data were consistent with economic growth picking up in the second quarter, labour market conditions continuing to strengthen, and inflation making progress toward the Committee’s 2% objective, then it likely would be appropriate for the Committee to increase the target range for the federal funds rate in June”.

“Market pricing still suggests a rate hike in June is unlikely, but the odds have improved significantly following the minutes,” said Jasper Lawler, market analyst at CMC Markets.

“The Fed is certainty aware of market expectations and by explicitly referencing June as a ‘live meeting’ are trying to massage them in the right direction. As is often the case with communications from the Fed, these minutes were an exercise in managing expectations.”

Federal Reserve Vice Chairman Stanley Fischer tried to douse the flames, saying that the US requires faster potential economic growth before lifting interest rates.

"What we need most, now that we are near full employment and approaching our target inflation rate, is faster potential growth," Fischer, the Fed's second-in-command, told an economics conference in New York.

Fellow Fed policymaker William Dudley also spoke in New York but kept schtum on interest rates. Instead he focused on the importance of incoming data on the Fed’s economic forecasts.

Meanwhile, oil prices continued to edge lower as the US dollar weakened and government data showed an unexpected increase in US weekly crude inventories.

The Energy Information Administration said US crude oil inventories rose 1.3m barrels to 541.3m barrels in the week ended 13 May, noting that this was a historical high for this time of the year.

West Texas Intermediate crude dropped 2.9% to $46.83 per barrel and Brent fell 3.07% to $47.47 per barrel at 1530 BST.

The dollar fell 0.07% against the pound, dropped 0.04% versus the euro and slipped 0.37% versus the yen.

In economic data, the Labor Department said the number of Americans filing for unemployment benefits fell a little less than expected last week. US initial jobless claims dropped by 16,000 to a seasonally-adjusted 278,000 from the previous week’s unrevised level. Economists had been expecting a slightly bigger decline to 275,000.

Manufacturing conditions in the Philadelphia region unexpectedly deteriorated further in May, according to the latest report from the Federal Reserve Bank of Philadelphia. The diffusion index for current activity fell to -1.8 from -1.6 in April. Economists had been expecting the index to move back into expansion territory with a reading of 3.5.

In corporate news, shares in seed giant Monsanto surged after German pharmaceutical group Bayer confirmed it was in takeover talks with the US company.

Wal-Mart jumped after reporting first quarter earnings and revenue that beat analysts’ estimates.

Dick’s Sporting Goods soared despite posting a drop in first quarter profit as it achieved a rise in revenue that surpassed forecasts.