Dollar Falls, Stocks Hit Record as Fed Seen Dovish: Markets Wrap

  • Spanish assets rose as Rajoy started action against Catalonia
  • Nikkei 225 advanced to the highest in almost twenty-one years

The dollar weakened, longer-maturity U.S. debt gained and U.S. stocks hit record highs after traders interpreted the minutes from the last Federal Reserve meeting as slightly dovish even though policy makers are expected to raise rates again this year.

“What came out today has kind of been the narrative since Yellen -- the narrative being that there’s going to be a rate hike in December -- but at the same time there’s increasing concern about inflation,” said Jim Paulsen, chief investment strategist at Leuthold Group LLC. “Well Yellen sort of laid out both of those in her testimony.”

The euro strengthened and Spanish assets rallied as the country’s government maintained a hard line on Catalonia’s independence bid. Spain’s benchmark IBEX 35 Index jumped to a week-high. Spanish Prime Minister Mariano Rajoy stopped short of suspending Catalonia’s government Wednesday, though starting a process that could lead to that. The Spanish relief rally failed to lift equities elsewhere, however, with the Stoxx Europe 600 little changed.

Rajoy said he would seek an explanation from Carles Puigdemont after the Catalan president’s announcement late Tuesday that he had a mandate for independence but would hold off and instead seek talks with the Spanish government. The formal demand for clarity may be a first step toward disbanding the regional government and moving control to Madrid. While it averted an immediate confrontation, it means the uncertainty lingers.

Several Fed officials said their decision on whether to raise rates this year “would depend importantly on whether the economic data in coming months increased their confidence” on inflation rising toward their 2 percent target. Market-implied odds of a Fed rate hike by year-end were unchanged around 75%, based on January 2018 fed fund futures, after the release of the minutes from the Sept. 20 policy meeting.

Pimco’s Richard Clarida reacts to the latest Fed minutes.

Source: Bloomberg

Earlier, Japan’s Nikkei 225 advanced to the highest in almost twenty-one years and the Dow Jones Industrial Average reached a fresh record high. The MSCI Emerging Market Index climbed to a six-year high.

Terminal subscribers can read more in our Markets Live blog.

What’s coming up this week:

  • The ECB’s Peter Praet speaks on monetary policy under the heading of ‘European Exit Strategies’ on Wednesday afternoon in New York.
  • Earnings season begins for major U.S. banks, led by JPMorgan Chase & Co., Citigroup Inc., Bank of America Corp. and Wells Fargo & Co.
  • The active Atlantic hurricane season will probably figure prominently in U.S. data on retail sales and consumer prices.

Here are the main moves in markets:


Stocks

  • The S&P 500 Index rose 0.1 percent to a record 2,555.24 at 4:16 p.m. in New York, the second consecutive all-time high. The Dow Jones Industrial Average reached an all-time high of 22,872.89, while the Nasdaq Composite Index gained 0.3 percent.
  • The Stoxx Europe 600 Index was little changed.
  • The MSCI All-Country World Index rose 0.1 percent.
  • Spain’s IBEX Index rose 1.3 percent.
  • The MSCI Emerging Market Index rose 0.5 percent.

Currencies

  • The Bloomberg Dollar Spot Index fell 0.3 percent.
  • The euro climbed 0.5 percent to $1.1867.
  • The Turkish lira strengthened 1.6 percent.


Bonds

  • Spain’s 10-year yield fell six basis points to 1.64 percent.
  • Germany’s 10-year yield increased two basis points to 0.46 percent.
  • U.S.’s 30-year yield fell two basis points to 2.88 percent.

Commodities

  • West Texas Intermediate crude rose 39 cents to $51.31 a barrel.
  • Gold futures rose 0.4 percent to $1,293.07 an ounce.
  • Copper climbed 1.2 percent to $3.10 a pound.

— With assistance by Dennis Pettit

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