markets

Stocks Turn Lower, Dollar Rises After Fed Minutes: Markets Wrap

Updated on
  • Bloomberg dollar index rises for fourth day on higher yields
  • S&P 500 falls for second day after erasing gain of 1 percent
The risk of a recession is rising as central banks go too far on rate hikes, Saxo Bank’s Steen Jakobsen says.

U.S. stocks erased gains to end lower for a second day, while the dollar jumped with Treasury yields on speculation that the pickup in inflation signaled by data since the Federal Reserve’s last meeting will force a faster tightening schedule.

The catalyst for the late-day selloff was Fed meeting minutes that painted the picture of a central bank increasingly confident that economic growth will pick up steam but still concerned inflation could miss targets. The initial reaction saw stocks jump with bonds, while the dollar fell.

Assets reversed course as investors pointed to economic data subsequent to the gathering that upend the idea of lagging inflation. The S&P 500 Index erased a gain that topped 1 percent to finish at a one-week low and Bloomberg’s dollar index climbed a fourth day. The 10-year Treasury yield rose to 2.94 percent.

“What we’re seeing on the committee on the growth side is consistent with the fact that there’s clear upside risks to the forecast that they have embedded from December,” James McCann, senior global economist at Aberdeen Standard Investments, said by phone. “A revision of those to be consistent would probably require them to put a little more policy tightening into the mix.”

When officials next convene March 20, they will consider for the first time a January jobs report that indicated rising wages and consumer prices that surged faster than forecast last month, two data points that belie their concern that inflation will lag.

Investors have also been watching a deluge of Treasury sales that are slated to put $258 billion up for auction this week. Surging rates gave impetus to one of the steepest equity selloffs in years two weeks ago. While investors seem to have adjusted to 10-year yields at a four-year high for now, the rush of fresh debt could push them higher, weakening the case for owning stocks at elevated valuations.

European equities rose even after data showed a fading outlook for manufacturing and services in the region. Sterling slumped following a rise in unemployment. Stocks climbed in Hong Kong, cementing a rebound from one of the worst routs in years at the start of February.

Bloomberg’s Chris Condon discusses the minutes from the Jan. 30-31 meeting of the Federal Reserve.

Source: Bloomberg)

Elsewhere, the rand jumped as traders took South Africa’s budget positively. Oil in New York dropped ahead of U.S. government data that’s forecast to show crude inventories gained for a fourth week. Bitcoin fell below $11,000.

Terminal users can read more in our markets blog.

Here are some key events scheduled for this week:

  • Fed policy makers speaking this week include New York Fed President William Dudley and Atlanta Fed President Raphael Bostic. Cleveland Fed President Loretta Mester is among speakers at the U.S. Monetary Policy Forum in New York City.
  • Companies announcing earnings this week include Woolworths, Barclays and Royal Bank of Scotland.
  • Shanghai’s market reopens on Thursday after holidays.

These are the main moves in markets:

Stocks

  • The S&P 500 fell 0.6 percent at 4 p.m. in New York.
  • The Nasdaq 100 fell 0.3 percent, after rising as much as 1.5 percent.
  • The Cboe Volatility Index fell 2.6 percent to 20.07.
  • The Stoxx Europe 600 Index erased losses to close higher by 0.2 percent.
  • The MSCI Asia Pacific Index gained 0.3 percent.
  • The MSCI Emerging Market Index jumped 1.2 percent.

Currencies

  • The Bloomberg Dollar Spot Index rose 0.4 percent for a fourth day of gains.
  • The euro dipped 0.1 percent to $1.2329.
  • The Japanese yen decreased 0.3 percent to 107.701 per dollar.
  • South Africa’s rand jumped 0.7 percent to 11.654 per dollar.
  • The MSCI Emerging Markets Currency Index advanced 0.1 percent.

Bonds

  • The yield on 10-year Treasuries rose four basis points to 2.94 percent.
  • The two-year rate jumped five basis points to 2.26 percent.
  • Germany’s 10-year yield fell one basis point to 0.72 percent.

Commodities

  • West Texas Intermediate crude decreased 0.3 percent to $61.58 a barrel, the first retreat in more than a week.
  • Gold futures were little changed at $1,330.90 an ounce.

— With assistance by Sophie Caronello, Andreea Papuc, Kristine Aquino, and Samuel Potter

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