Stocks Inch Up After Yellen Remarks, Dollar Gains: Markets Wrap

Updated on
  • Euro slide deepens after German vote, May Brexit comments
  • Treasuries and gold fall as investors unload haven positions

Yellen Says Fed Path Subject to Much Uncertainty

U.S. stocks crept higher as Janet Yellen warned that the Federal Reserve should be wary of tightening monetary policy too gradually. The dollar gave back some earlier gains and Treasuries added to losses.

The S&P 500 Index all but erased its increase in the final 30 minutes of trading to finish essentially unchanged, while technology shares climbed and small caps rose to a record. Bloomberg’s dollar index, which had jumped the most since January in early trading, retreated but remained positive as the Fed chair said raising interest rates gradually is the appropriate policy stance considering the uncertainty surrounding inflation. Yields on 10-year treasuries held at 2.23 percent.

“It looks like the committee is headed toward a December hike unless something disappoints on the inflation side,” Dennis DeBusschere, head of portfolio strategy at Evercore ISI, said by phone. “But beside that, it’s total uncertainty because Yellen is less likely to be here after that. What the speech seemed to do is give you a lot of different scenarios, all of which will be the job for the new Fed chair to handle.”

The euro fell to a five-week low following the steepest drop of the year on Monday after U.K. Prime Minister Theresa May’s comments on Brexit negotiations. The yen pared some of the previous day’s gains, which followed North Korea’s declaration it could shoot down U.S. warplanes. WTI crude declined, though was still close to a five-month high after Turkey threatened to shut down Kurdish crude shipments. Emerging market shares tumbled.

Markets have been oscillating between risk-on and risk-off stances since early August as tensions simmer on the Korean Peninsula. Now, an assortment of geopolitical risks appear set to further cloud the outlook, not least the worry that gains by far-right parties in Germany’s vote signal a new populist bent in Europe.

“As we saw with the German elections, the populist undercurrent is still there in Europe,” Charles Diebel, head of rates at Aviva Investors on London, said in an interview with Bloomberg TV’s Mark Barton. “That could be more fundamental to the progress for Europe.”

Read more in our story, Global Markets on Edge as Elections Thrust Politics Back to Fore.

This week’s bevy of central bank speakers continues to offer more clues to the path of monetary policy and the fate of stimulus. Investors also are monitoring the ongoing saga of President Donald Trump’s domestic policies in an attempt to gauge the chances of meaningful tax reform in the world’s biggest economy.

Terminal subscribers can read more in our Markets Live blog.

What to watch out for this week:

  • U.S. data on durable-goods orders, GDP and personal spending later in the week will provide further clues as to the Fed’s policy path.
  • Brexit negotiations are getting underway again.
  • Spanish Prime Minister Mariano Rajoy will meet U.S. President Donald Trump in Washington Tuesday while his team back in Madrid attempts to turn the screws on a secessionist push in Catalonia.
  • The euro-area inflation rate may have accelerated a touch to 1.6 percent in September from 1.5 percent but the core will probably remain at 1.2 percent when data is out on Friday.

And here are the main moves in markets:

Stocks

  • The S&P 500 was little changed at 2,496.84, the Nasdaq 100 Index added 0.2 percent and the small cap Russell 2000 Index gained 0.3 percent to reach a record high.
  • The Stoxx Europe 600 Index was little changed.
  • The U.K.’s FTSE 100 Index fell 0.2 percent, while Germany’s DAX Index gained less than 0.1 percent. 
  • The MSCI All-Country World Index fell 0.3 percent to the lowest in over two weeks. 
  • The MSCI Emerging Market Index sank 0.8 percent to the lowest in more than a month.

Currencies

  • The Bloomberg Dollar Spot Index gained 0.3 percent to the highest since August. 
  • The euro sank 0.5 percent to $1.1792, the weakest in five weeks. 
  • The British pound dipped 0.1 percent to $1.3451, the lowest in more than a week. 

Bonds

  • The yield on 10-year Treasuries added one basis point to 2.2322 percent. 
  • Germany’s 10-year yield increased one basis point to 0.406 percent. 
  • Britain’s 10-year yield fell less than one basis point to 1.33 percent.

Commodities

  • West Texas Intermediate crude fell 0.5 percent to $51.94 a barrel. 
  • Gold declined 1.14 percent to $1,295.85 an ounce.

Asia

  • Japan’s Topix index closed flat after trading in a narrow range. South Korea’s Kospi index fell 0.3 percent and Australia’s S&P/ASX 200 Index lost 0.2 percent.
  • Hong Kong’s Hang Seng Index added less than 0.1 percent after slumping 1.4 percent on Monday as Chinese property developers tumbled on fresh mainland home curbs. Read how one of the world’s most extreme stock rallies gets a reality check.
  • The Japanese yen decreased 0.2 percent to 111.98 per dollar.

— With assistance by Adam Haigh, and Robert Brand

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