Dollar, Stocks Drop as Fed Minutes Tilt Dovish: Markets Wrap

Updated on
  • Near-term rate hike signaled, but inflation debate persists
  • Crude rises before OPEC meeting; yen reaches nine-week high
Fidelity International’s David Buckle discusses the Fed minutes and the flattening U.S. yield curve.

The dollar suffered its biggest decline in more than eight months, while U.S. stocks ended the day lower, after minutes from the latest Federal Reserve meeting indicated officials expect inflation to remain persistently low even as support for an interest-rate increase grows.

Bloomberg’s dollar spot index fell to the lowest level since October as Fed officials meeting earlier this month saw an interest-rate increase in the near term even as divisions persisted over the policy path forward amid tepid inflation. Treasuries added to gains, pushing the 10-year yield to 2.32 percent, and oil rallied. 

“They are still discussing the inflation issue internally and that seems to be the major source of disagreement as one would expect,” Brad Bechtel, a currency strategist at Jefferies LLC, said in a message. “December seems firmly on the table but 2018 remains a bit of a wild card. The USD move is a bit of position unwind ahead of the long holiday weekend given that most will be out of the office Friday.”

The S&P 500 Index fell 0.1 percent the day before Thanksgiving. Trading volume was more than 20 percent below the 30-day average.

Federal Reserve Chair Janet Yellen, who’s leaving the central bank in February, has warned that tightening monetary policy too quickly risks stranding inflation below the Fed’s 2 percent target, giving investors yet more to think about as the bond market in the world’s biggest economy hints at concern over the pace of U.S. economic expansion.

“There’s nothing antithetical about raising rates when the economy is doing well,” Mark Spellman, a portfolio manager at Alpine Funds in Purchase, New York, said by phone before the minutes came out. “We don’t have a dollar problem, we don’t have an inflation problem. This is just purely: We were at zero rate policy for so many years, emergency rates, and we’re normalizing.”

West Texas crude rose to its highest price in more than two years, as a drop in U.S. stockpiles added optimism to a rally underpinned by hopes for an OPEC deal extension.

Sterling swung between gains and losses before rising even as growth forecasts for the U.K. were cut in the latest budget, while Britain’s exporter-heavy FTSE 100 Index stayed higher. Germany’s DAX Index and the Stoxx Europe 600 Index both declined.

The yen rose to a nine-week high against the dollar. The euro gained as efforts continued to end Germany’s political impasse. Chancellor Angela Merkel’s party is betting on a revived alliance with the Social Democrats to dodge the risk of new elections after coalition talks with two other parties broke down, according to people familiar with discussions in Berlin.

Here are some key events coming up this week:

  • Minutes from the European Central Bank’s October meeting due on Thursday could show dissent in the discussion about tapering.
  • In Asia, Singapore 3Q GDP is due on Thursday. New Zealand October trade and South Korea November consumer confidence are due later in the week.

These are the main moves in markets:

Stocks

  • The S&P 500 Index fell 0.1 percent at 4:06 p.m. New York time.
  • The Stoxx Europe 600 Index fell 0.3 percent.
  • The U.K.’s FTSE 100 Index gained 0.1 percent.
  • Germany’s DAX Index fell 1.2 percent, its biggest drop in almost two weeks.
  • The MSCI Emerging Market Index jumped 0.7 percent to the highest in more than six years.

Currencies

  • The Bloomberg Dollar Spot Index decreased 0.7 percent.
  • The euro rose 0.7 percent to $1.1822.
  • The British pound gained 0.6 percent to $1.332, hitting its strongest in almost eight weeks.
  • The Japanese yen climbed 1.1 percent to 111.20 per dollar.

Bonds

  • The yield on 10-year Treasuries fell three basis points to 2.33 percent.
  • Germany’s 10-year yield declined less than one basis point to 0.35 percent.
  • Britain’s 10-year yield rose less than one basis point to 1.275 percent.

Commodities

  • West Texas Intermediate crude rose 2.1 percent to $58.01 a barrel.
  • Gold rose 0.9 percent to $1,291.65 an ounce.

Asia

  • Australia’s S&P/ASX 200 Index rose 0.4 percent. 
  • South Korea’s Kospi index added 0.4 percent.
  • The Hang Seng Index jumped 0.6 percent as Chinese financial shares climbed. The Shanghai Composite Index also gained 0.6 percent.
  • The MSCI Asia Pacific Index advanced 0.7 percent.

— With assistance by Adam Haigh, Sofia Horta E Costa, Robert Brand, and Samuel Potter

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