Stocks Pare Drop As Fed Minutes Ease Rate Wagers: Markets Wrap

(Bloomberg) -- US stocks pared losses after minutes from the Federal Reserve’s last meeting eased concerns about the path of aggressive measures to contain stubbornly high inflation. 

The S&P 500 Index traded well off session lows along with the tech-heavy Nasdaq 100 after Fed minutes noted it would eventually be appropriate to decelerate the pace of interest-rate increases. Two-year yields, the most sensitive to policy changes, pulled back from session highs. The dollar trimmed gains.

US stocks have rallied on signs of peaking inflation and an earnings-reporting season that saw four out of five companies meeting or beating estimates. Yet, prospects of the Fed continuing to raise rates to cool inflation and tip the economy into a recession has weighed on sentiment.

“The market reaction is one of relief, with a nice recovery in benchmark equity indices alongside a softening in yields across the Treasury curve,” said Eric Theoret, global macro strategist at Manulife Investment Management. “The relief is important given that the recent market recovery has been driven by tech, which had struggled in recent days, given the prospect of a Fed that might possibly be finding itself ‘behind the curve.’”

Earlier Wednesday, data showed retail sales stagnated last month on declines in auto purchases and gasoline prices, but other categories indicated resilient consumer spending. Excluding gasoline and autos, sales rose a better-than-expected 0.7%.

In corporate news, Target Corp. fell as profit lagged behind Wall Street’s estimates, while Lowe’s Cos. gained after the home-improvement retailer reported earnings that beat estimates even as renovators wrestle with a slumping US housing market.

It’s been a choppy day for risk sentiment. Earlier on Wednesday, stocks rose in Asia amid speculation that China may deploy more stimulus to shore up its ailing economy. Some of those equity gains were surrendered when European trading opened and the focus turned to the Fed as well as UK inflation, which soared to double digits for the first time in four decades. 

“We just had a price momentum signal,” Keith Lerner, co-chief investment officer at Truist Advisory Services, said on Bloomberg TV. “When you go from indiscriminate selling to indiscriminate buying, we can measure that. What’s holding us back from fully endorsing that signal is that global central bank tightening is so aggressive and the yield curve inversion is the deepest since about 2000.”

Inflation remains the most closely-watched indicator in the second half. Will it come down gradually, or will it stay elevated, forcing the Fed to keep raising rates aggressively? Have your say in the anonymous MLIV Pulse survey.

Here are some key events to watch this week:

• Federal Reserve July minutes, Wednesday
• Australia unemployment, Thursday
• U.S. existing home sales, initial jobless claims, Conference Board leading index, Thursday
• Fed’s Esther George, Neel Kashkari speak at separate events, Thursday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 0.2% as of 2:40 p.m. New York time
• The Nasdaq 100 fell 0.4%
• The Dow Jones Industrial Average was little changed
• The MSCI World index fell 0.2%

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro rose 0.3% to $1.0199
• The British pound fell 0.1% to $1.2082
• The Japanese yen fell 0.5% to 134.87 per dollar

Bonds

• The yield on 10-year Treasuries advanced seven basis points to 2.87%
• Germany’s 10-year yield advanced 11 basis points to 1.08%
• Britain’s 10-year yield advanced 16 basis points to 2.29%

Commodities

• West Texas Intermediate crude rose 1.7% to $88.04 a barrel
• Gold futures fell 0.4% to $1,782.60 an ounce

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