Dollar Drops, Treasuries Rise on Inflation View: Markets Wrap

  • Fed holds rates steady, see balance sheet unwind ‘soon’
  • S&P 500 ends session little changed, erasing earlier gains

Algebris' Gallo Sees U.S. Dollar, Treasury as Fear Gauge

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Treasuries rose, the dollar fell and U.S. stocks ended little changed after the Federal Reserve signaled that inflation remains persistently below its target even as the economy picks up steam. Oil surged to an eight-week high.

The Bloomberg Dollar Spot Index fell to the lowest in more than a year, while the 10-year Treasury yield slipped back below 2.3 percent after the Fed held rates steady and indicated it would start unwinding its balance sheet “relatively soon.” The S&P 500 Index erased gains in the final 15 minutes of trading. Results from AT&T Inc. to Boeing Co. bolstered other major indexes. Facebook Inc. rose 2 percent in late trading after reporting its earnings. Crude climbed above $48 a barrel as stockpiles shrank.

The Fed that inflation remains below the central bank’s 2 percent target even as near-term risks to the economic outlook appear “roughly balanced,” fueling speculation the central bank won’t rush to raise rates. Balancing that dovish bent, the start of balance-sheet reduction another milestone as the Fed looks to return policy to a more normalized level.

The central bank decision overshadowed a raft of corporate earnings, during a season that’s seen more than 80 percent of S&P 500 companies that have delivered earnings beat forecasts. That’s boosted optimism in the global economy and pushing volatility towardrecord lows.

Read our Markets Live blog here.

Here are some key events coming up:

  • Results from Facebook Inc., Deutsche Bank AG, Nomura Holdings Inc., BNP Paribas SA and UBS Group AG are among those expected this week.

Here are the main moves in markets:
Stocks

  • The S&P 500 gained less than 0.1 percent to end at 2,477.87 as of 4 p.m. in New York, extending its all-time high by less than one point. It rose as much as 0.2 percent earlier in the session, with earnings delivering outsize moves for some stocks.
  • The Dow Jones Industrial Average rose above 21,700 for the first time. Small caps in the Russell 2000 Index slid 0.6 percent.
  • Boeing Co. jumped 9.9 percent to a record, while AT&T added 5 percent, the most since 2009.
  • The Stoxx Europe 600 Index advanced 0.5 percent, the biggest gain in a week.
  • The U.K.’s FTSE 100 Index increased 0.2 percent.
  • Germany’s DAX Index climbed 0.3 percent.

Currencies

  • The Bloomberg Dollar Spot Index fell 0.6 percent.
  • The yen rose 0.6 percent to 111.247 per dollar after declining 0.7 percent on Tuesday.

Commodities

  • Gold futures erased losses to trade 0.7 percent higher at $1,266 an ounce.
  • West Texas Intermediate crude advanced 1.8 percent to settle at $48.75 a barrel, the highest since May 30. Government data showed U.S. crude and products stockpiles tumbled last week to their lowest levels since the start of the year.
  • Copper gained 1.7 percent to settle at $6.329 a metric ton in London. Read more about copper’s rally here
  • The Bloomberg Commodity Index climbed 0.7 percent.

Bonds

  • The yield on 10-year Treasuries fell five basis points to 2.29 percent, after surging eight basis points in the previous session.
  • Germany’s 10-year yield decreased one basis point to 0.56 percent.
  • Britain’s 10-year yield declined three basis points to 1.233 percent after data showed the U.K. economy expanded 0.3 percent in the second quarter, matching estimates.
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