U.S. Stocks, Dollar Fall as Minutes Spark Caution: Markets Wrap

  • Rise in oil inventories sends U.S. crude below $51 a barrel
  • Investors await Trump-Xi meeting, U.S. jobs, Fed minutes

Fed Favors Plan to Shrink Balance Sheet Later in 2017

U.S. stocks fell with the dollar, while Treasuries rose as Federal Reserve meeting minutes sparked a note of caution on financial markets as investors assess the timing for future rate increases and changes to tax and spending policies.

The S&P 500 Index erased gains as the minutes indicated some officials saw equity prices as “quite high,” while Reuters reported House Speaker Paul Ryan said that tax reform could take longer than health overhaul. Treasury yields and the dollar fell as the Fed saw muted risks that inflation will accelerate past projections and officials thought it appropriate to shrink the balance sheet this year. Crude slipped below $51 a barrel after data showed an increase in U.S. inventories.

While the record from the policy meeting in mid-March did little to alter market views on the Fed’s assessment of the U.S. economy, the discussion on shrinking the central bank’s $4.5 trillion balance sheet later this year fueled speculation the pace of rate hikes might slow. The central bank also acknowledged prices for some risk assets have risen “significantly.”

Investors are also focused on health-care and tax policy in Washington, where House Speaker Paul Ryan said the chances for a vote on a revised repeal of Obamacare this week were dwindling. There is series of major data releases this week -- culminating in a payrolls report Friday forecast to show 175,000 jobs added by U.S. employers in March -- that will offer clues to the strength of the world’s biggest economy. The ADP Research Institute’s private payroll report came in stronger than forecast, fueling early gains in equities.

Read our Markets Live blog here.

Here are the major moves in markets:

Stocks

  • The S&P 500 fell 0.3 percent to 2,352.89 at 4 p.m. in New York. The measure earlier rose as much as 0.8 percent before dipping when oil data showed a rise in inventories. Stocks fell immediately following the release of the minutes, only to rebound rapidly before fading again.
  • Small caps in the Russell 2000 Index fell 1.2 percent while the Dow Jones Industrial Average lost 0.2 percent.
  • The Stoxx Europe 600 fluctuated between gains and losses, before ending little changed.
  • The MSCI Emerging Market Index advanced 0.3 percent.

Currencies

  • The Bloomberg Dollar Spot Index fell 0.1 percent, erasing what would have been a third straight day of gains.
  • The euro strengthened 0.1 percent to $1.0681.
  • The pound climbed 0.4 percent to $1.2485, advancing for the first time in three days as U.K services grew faster than economists expected.
  • The South African rand jumped as much as 1.1 percent before falling 1.4 percent.

Bonds

  • The yield on 10-year Treasury notes slipped one basis point to 2.35 percent after rising four basis points on Tuesday.
  • The yield curve from five to 30 years steepened for a fifth straight session, the longest streak since September, to 114 basis points, after the Fed minutes.

Commodities

  • The Bloomberg Commodities Index rose toward a one-month high, buoyed by base metals.
  • West Texas Intermediate crude rose 12 cents to settle at $51.15 a barrel in New York. It was the highest settlement in a month. Concern over record U.S. stockpiles was offset by speculation that rising refinery demand will curb supply in coming weeks.
  • Copper advanced with other LME metals on optimism China’s plan to develop a new economic zone near Beijing would boost demand. The U.S. ADP jobs report added to bullish sentiment.

— With assistance by Mark Shenk, Susanne Barton, and Brian Chappatta

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