Stocks, Dollar Gain Amid Fed Minutes as Oil Drops: Markets Wrap

  • Fed officials divided on timing for reducing balance sheet
  • Technology shares rebound after first monthly loss of year

VTB Strategist Says Fed, ECB Are at an Inflection Point

U.S. equities rose with the dollar while Treasuries pared gains as investors saw a hawkish bent to the latest Federal Reserve meeting minutes, with officials debating the timing of balance-sheet reductions.

The S&P 500 Index rose a third day to close 0.9 percent from its June 19 all-time high, even as the minutes showed some officials concerned “increased risk tolerance” among investors could be lifting asset prices and building risks to financial stability. Chipmakers beaten down in the past three weeks led a rebound in technology shares. Treasury 10-year note yields held near 2.33 percent and the dollar advanced versus most peers. Oil tumbled toward $45 after an eight-day rally.

CIBC strategist Jeremy Stretch sees markets being driven by monetary policy, not North Korea tensions.

(Source: Bloomberg’s Daybreak: Europe)

The Fed minutes did little to alter market expectations for a third rate hike this year, most likely December as officials view tepid inflation rates as transitory. The central bank also signaled that September could mark the start of unwinding its $4.5 trillion balance sheet, though that is hardly a sure bet. The comments on asset prices underscore why three officials, including Chair Janet Yellen, last week mentioned rising valuation metrics in separate speeches.

Markets had largely ignored the rising tensions on the Korean peninsula, with an emergency United Nations Security Council meeting on Wednesday looking to formulate a response to North Korea’s latest provocation.

Read more: Could central banks spur a return of volatility?

Read our Markets Live blog here.

Here’s what’s coming up:

  • The European Central Bank on Thursday releases minutes from its last meeting. Investors will look for clues on whether the bank is closer to tightening, after officials last week walked back comments from President Mario Draghi that the market interpreted as hawkish.
  • A G-20 summit kicks off in Hamburg this week. U.S. President Donald Trump is expected to hold his first meeting with Russia’s Vladimir Putin as well as meet his Chinese counterpart Xi Jinping.
  • American employers probably added around 175,000 workers in June and wage growth probably strengthened, consistent with a solid labor market, economists project the U.S. Labor Department to report on Friday.

These are the main moves in markets:

Stocks

  • The S&P 500 Index added 0.2 percent to 2,433.64 at 4 p.m. in New York.
  • The Nasdaq 100 jumped 1 percent. Advanced Micro Devices climbed 8.6 percent and Micron Technology rose 4.8 percent.
  • The Stoxx Europe 600 Index advanced 0.2 percent.
  • Emerging-market stocks rose 0.4 percent, adding to gains after the Fed minutes.

Currencies

  • The Bloomberg Dollar Spot Index strengthened 0.1 percent. 
  • The British pound edged higher to $1.2928. 
  • The euro was little changed at $1.1341.

Commodities

  • West Texas Intermediate crude futures dropped 4.1 percent to settle at $45.13 a barrel. The loss ended the longest winning streak this year, as Russia was said to oppose any proposal to deepen OPEC-led production cuts.
  • Gold futures rose 0.5 percent to $1,225 an ounce. 
  • Copper futures posted the biggest loss in two weeks as inventories tracked by the London Metal Exchange climbed the most since early March.

Bonds

  • The yield on 10-year Treasuries fell two basis points to 2.33 percent. The market was closed Tuesday.
  • U.K. benchmark yields advanced one basis point to 1.26 percent. 
  • French yields were little changed, while those of Germany slipped one basis point to 0.47 percent.

— With assistance by Sid Verma

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