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Shares choppy, U.S. yields fall as investors digest Fed minutes
Global Banking & Finance Review®
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By Chibuike Oguh
NEW YORK (Reuters) – Global equity markets were choppy and U.S. Treasury yields fell on Thursday, as uncertainty over the pace of interest rate hikes prevailed among investors after the Federal Reserve’s meeting minutes showed officials were determined to curb rising prices.
Markets have remained bearish amid concerns about a looming recession, even though Fed officials indicated in the minutes of their July meeting released on Wednesday that they would adopt a less aggressive stance if inflation starts to recede.
“The markets are still trying to figure out the Fed minutes,” causing volatility, said Charles Self, chief investment officer at Tandem Wealth Advisors in Appleton, Wisconsin.
“The minutes were uniformly hawkish in our view,” Self added. “It’s clear that among all the voting members that curing inflation is the No. 1 choice and they’re going to do whatever is necessary as far as raising rates to get there. We think they’re using the labor market as cover.”
MSCI’s gauge of stocks in 50 countries across the globe shed 0.23%. The pan-European STOXX 600 index, however, edged up 0.39%.
U.S. Treasury yields edged lower as investors continued to digest the Fed meeting minutes. Benchmark 10-year notes were down to 2.8713%, from 2.895% on Wednesday. Two-year notes retreated to 3.2246%, from 3.295%.
The yield curve between two- and 10-year Treasury notes, widely viewed as an indicator of impending recession, remained inverted at minus 38 basis points on Thursday.
“Since the Fed’s July 27 meeting, the two-year yields have been up 43 basis points, meaning that the bond market thinks they’re going to raise rates higher for a longer period of time, whereas the stock market has been up 5%, meaning the market thinks they’ll raise rates relatively quickly and maybe even decrease rates next year,” Self added.
“Well, I think the bond market is usually right.”
MAJOR INDEXES
On Wall Street, all major indexes were trading lower, driven by a selloff in stocks in the healthcare, financials, consumer discretionary and consumer staples sectors.
The Dow Jones Industrial Average fell 0.33% to 33,867.17, the S&P 500 lost 0.11% to 4,269.42, and the Nasdaq Composite dropped 0.05% to 12,931.39.
Oil prices gained about 2% as robust U.S. fuel consumption data and an expected drop in Russian supply later in the year offset concerns that slowing economic growth could undercut demand.
Brent futures rose 2.26% to $95.77 a barrel, while U.S. West Texas Intermediate (WTI) crude rose 2.04%, to $89.91.
The U.S. dollar index hit a three-week high as investors reevaluated Wednesday’s Fed minutes as more hawkish than originally interpreted and after data showed solid U.S. economic momentum.
The dollar index rose 0.647%, with the euro down 0.78% to $1.0101.
Gold reversed earlier gains and was lower on a firmer dollar, as investors looked for more economic cues that could influence rate hikes. Spot gold dropped 0.2% to $1,757.68 an ounce, while U.S. gold futures gained 0.15% to $1,762.90 an ounce.
(Reporting by Chibuike Oguh in New York; Editing by Susan Fenton and David Holmes)
Monetary policy refers to the actions taken by a central bank to control the money supply and interest rates in an economy, aiming to achieve macroeconomic objectives such as controlling inflation and stabilizing currency.
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power. Central banks attempt to limit inflation to maintain economic stability.
The yield curve is a graph that plots the interest rates of bonds with different maturities, typically showing how yields change as the time to maturity increases. It is used to gauge economic expectations.
The U.S. dollar index measures the value of the U.S. dollar relative to a basket of foreign currencies. It is an important indicator of the dollar's strength in global markets.
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