Dollar Falls With Stocks Amid Dovish Fed Minutes: Markets Wrap

  • S&P 500 falls for second time in 11 sessions as oil declines
  • Fed minutes show officials ready to hike if necessary

Morgan Stanley's Redeker Sees Euro Parity by Summer

The dollar fell while Treasuries advanced after minutes from the Federal Reserve’s latest meeting showed officials confident they can raise rates gradually amid little threat that near-term inflation will accelerate. The S&P 500 index slipped from an all-time highs after rising in nine of the past 10 days.

The dollar edged lower after the Fed minutes showed officials prepared to raise rates “fairly soon,” though confident they would not have to rush to tighten. The torrid gains in American equities stalled on a day with few earnings reports and data showing continued strength in the U.S. housing market. Europe’s currency rebounded, after briefly falling below $1.05 for the first time in more than six weeks, as French centrist Francois Bayrou bowed out of the presidential race and offered his support to independent candidate Emmanuel Macron. Oil fell from the highest price in more than a week.

The market response to the Fed minutes from a meeting three weeks ago was moderate, with the dollar showing the biggest reaction. The statement showed Fed officials wrestling with uncertainty on issues ranging from the Trump administration’s fiscal stimulus plans to the headwinds a rising dollar may pose. The discussion of a rate hike “fairly soon” was tempered by other comments that indicated little concern about near-term inflation risks. The odds for an increase in March held at 36 percent. Allianz SE chief economic adviser Mohamed El-Erian said that seems “too low.”

Read our Markets Live blog here.

Here are the main market moves:

Stocks

  • The S&P 500 fell 0.1 percent to 2,362.59 at 4 p.m. in New York. 
  • DuPont Co. rose as much as 4.5 percent to a record after Bloomberg News reported on Wednesday that European Union antitrust regulators are on track to approve the company’s historic merger with Dow Chemical Co.
  • The chemical company’s surge helped the Dow Jones Industrial Average add 0.2 percent to a fresh record.
  • The Nasdaq Composite Index and the Russell 2000 Index slipped from all-time highs.
  • The Stoxx Europe 600 Index gave up earlier gains to end little changed. The gauge hit the highest level since December 2015 as volatility dropped to the lowest since mid-2014.
  • The MSCI Asia Pacific Index was at the highest level since July 2015 as Chinese shares traded in Hong Kong resumed a rally. Japanese equities managed to end higher even after fluctuations in the yen pressured the Topix.

Currencies

  • The Bloomberg Dollar Spot Index fell 0.2 percent. 
  • The yen strengthened 0.6 percent to 113.058 per dollar to lead led advances in major currencies following two days of declines. 
  • The euro rose 0.3 percent to $1.0568 after touching a six-week low, while the pound reversed early gains, weakening 0.1 percent to $1.2461.

Bonds

  • The yield on 10-year Treasuries fell two basis points to 2.41 percent after rising two basis points earlier. They had risen to session highs following tepid demand for a monthly auction of five-year notes.
  • Yields on German bunds due in a decade fell two basis points to 0.22 percent, as that on two-year notes touched a record minus 0.915 percent before rebounding to minus 0.883 percent.
  • The difference between German five-year bonds and their equivalent interest rate swap spread hit the highest level on record.

Commodities

  • Oil dropped on forecasts for another expansion in U.S. crude stockpiles while attention shifted to whether OPEC will extend production cuts.
  • West Texas Intermediate crude lost 1.4 percent to settle at $53.59 a barrel. Brent fell 1.5 percent to close at $55.84.
  • Copper dropped 0.2 percent, leading a decline in most industrial metals amid signs of a slower-than-expected demand recovery in China after Lunar New Year holidays. Nickel fell 0.8 percent.
  • Spot gold erased declines after the Fed minutes. Bullion futures were little changed near $1,239.20 an ounce in New York.

— With assistance by Cecile Gutscher, Craig Torres, Elizabeth Stanton, Samuel Potter, Susanne Barton, Mark Shenk, and Gaspard Sebag

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