Post-Fed Trades Fade as U.S. Stocks, Bonds Retreat: Market Wrap

  • S&P 500 turns lower after best advance in two weeks on Fed
  • Gold rallies more than 2 percent, crude slips below $49

Dutch Vote Was for Open Society, Says DBA's Buijink

Trades sparked by the Federal Reserve’s dovish tone partially unwound Thursday, as U.S. stocks slumped after the best gain in two weeks and Treasury yields edged higher following an 11-point tumble. The dollar slipped.

The S&P 500 Index’s post-Fed rally ran out of steam after the index climbed within 0.5 percent of an all-time high. Health-care shares led declines. Treasuries fell amid steeper declines for U.K. bonds after the Bank of England moved closer to raising rates. The pound advanced. Emerging-market equities surged the most since July on bets American growth will drive demand abroad. European shares rose after the Dutch election eased concerns about the rise of populism. Crude slipped below $49 a barrel.

The Fed raised its benchmark lending rate a quarter point without accelerating the timetable for future hikes. Chair Janet Yellen said in a press conference that the “simple message is the economy is doing well.” Investors anticipated the tightening and Treasury yields had climbed with the dollar on speculation the central bank might signal a faster pace of tightening. Those trades unwound late Wednesday as policy makers indicated they haven’t fallen behind with efforts to keep inflation in check.

“There was some uncertainty that they might signal that they feel behind the curve, and the answer was not,” Isabelle Mateos Y Lago, global macro strategist at BlackRock Investment Institute in Paris, said in an interview with Bloomberg TV’s Matt Millar. “Central banks are on a reasonably predictable path on both sides of the Atlantic now.”

Just hours after the Fed’s decision, the BOJ left its plans unchanged, increasing the policy divergence between the two central banks. China’s central bank raised borrowing costs as a stable economy and factory reflation give it scope to follow the U.S. The Swiss National Bank kept its deposit rate at an historic low and reaffirmed its threat to intervene to keep a lid on the franc. Turkey’s central bank raised a key interest rate to rein in inflation.

Read our Markets Live blog here.

What investors will be watching:

  • U.S. President Donald Trump unveiled a fiscal 2018 budget request. He is proposing historically deep cuts that would touch almost every federal agency and program and dramatically reorder government priorities to boost defense and security spending.
  • U.S. Secretary of State Rex Tillerson travels to Japan, South Korea and China in his first visit to the region since taking office.

 
Here are the main market moves:

Stocks

  • The S&P 500 slipped 0.2 percent to 2,381.24 at 4 p.m. in New York, after the benchmark gauge added 0.8 percent on Wednesday.
  • Health shares slid 0.9 percent. Small caps in the Russell 2000 Index advanced 0.2 percent.
  • The Stoxx Europe 600 Index climbed 0.7 percent. The gauge is trading at the highest level since December 2015.

Currencies

  • The Bloomberg Dollar Spot Index lost 0.2 percent after its 1.3 percent post-FOMC drop.
  • The euro dropped by 0.1 percent to $1.0727, after touching a five-week high at $1.0746; it gained 1.2 percent on Wednesday.
  • Sterling erased an earlier decline to trade 0.6 percent higher at $1.2365. The pound and Swiss franc were the only Group-of-10 currencies trading higher versus the greenback.

Bonds

  • The yield on 10-year Treasuries rose four basis points to 2.53 percent after the rate dipped below 2.50 percent following the Fed decision. It traded above 2.60 percent earlier in the week.
  • French bonds reversed earlier gains that had pushed the yield on the 10-year note six basis points lower. The benchmark yield traded five basis points higher at 1.092 percent.
  • Spanish and Italian 10-year bond yields rose at least six basis points, while the yield on the German benchmark bund added three basis points to 0.45 percent.

Commodities

  • West Texas Intermediate slipped 11 cents to settle at $48.75 a barrel and Brent fell 7 cents to close at $51.74. Saudi Arabian Energy Minister Khalid Al-Falih expressed concern about high global inventories a day after the U.S. reported its stockpiles declined for the first time this year.
  • Gold futures for April delivery advanced 2.2 percent to settle at $1,227.10 an ounce in New York, poised for the biggest gain for a most-active contract since June 24. The metal headed for its first weekly increase since Feb. 24.

— With assistance by Samuel Potter, Jessica Summers, Elizabeth Stanton, and Luzi-Ann Javier

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