Global Markets Stocks slide, dollar gains after Fed minutes

Global Markets Stocks slide, dollar gains after Fed minutes
Business & Markets 2013
Written by Reuters
Thursday, 22 August 2013 08:01

NEW YORK (Aug 22): Global equity markets and bond prices slid while the dollar strengthened on Wednesday after minutes from the latest Federal Reserve policy-setting meeting did not alter expectations the Fed would eventually begin to trim its bond-buying program.

U.S. equities dropped to session lows, rebounded to trade in positive territory, and fell again after the afternoon release of minutes from the Fed's policy-setting meeting in late July.

The minutes showed differences among members of the Federal Open Market Committee as to when the Fed should start winding down its stimulus but did not materially change the market's expectation of a September tapering.

"If investors were looking for strong, clear signals from this month's FOMC minutes, they were disappointed," said Andrew Milligan, head of global strategy at Standard Life Investments in Edinburgh.

"All is open for a September decision on tapering, but this still depends on the economic data in coming days and weeks pointing to a firm upturn in the economy," Milligan said.

The minutes show the Fed did not wish to alter the message it gave following its policy-setting meeting in June and did not wish to alter market expectations, said Alan Ruskin, global head of foreign exchange strategy at Deutsche Bank in New York.

Yields on the benchmark 10-year U.S. Treasury note soared to almost 2.9 percent, a level last seen in July 2011.

Investors and traders have been cautious recently, with the benchmark S&P 500 stock index dropping five of the past six sessions, amid uncertainty over when the Fed will begin to wind down its $85 billion a month stimulus program.

"It's only a question of how much they are going to let up on the gas, there is no question they will not be tapping on the brakes," said Erik Davidson, deputy chief investment officer for Wells Fargo Private Bank in San Francisco.

The Dow Jones industrial average closed down 105.44 points, or 0.70 percent, at 14,897.55. The Standard & Poor's 500 Index fell 9.55 points, or 0.58 percent, at 1,642.80. The Nasdaq Composite Index fell 13.80 points, or 0.38 percent, at 3,599.79.

MSCI's all-country stock index was down 0.85 percent at 367.09, while the pan-European FTSEurofirst 300 index of top regional shares closed down 0.6 percent at 1,207.71.

The dollar edged higher from a six-month low against the euro and gained versus the yen.

The euro was down 0.43 percent at $1.3358. The dollar index, which measures the greenback versus a basket of six currencies, rose 0.51 percent to 81.315. Against the yen, the dollar rose 0.5 percent to 97.75.

U.S. Treasuries prices fell, as did German bond prices before the release of the Fed minutes.

The benchmark 10-year U.S. Treasury note was down 21/32 in price to yield 2.8935 percent.

German 10-year bond yields rose as high as 1.892 percent, just below levels on Monday that were the highest since March 2012, and last yielded about 1.87 percent.

German Bund futures settled 47 ticks lower at 140.14.

Before the minutes were released, a report showed U.S. home resales rose in July to the highest level in over three years, suggesting sharply rising borrowing costs are having only a limited impact on the housing market's recovery.

The National Association of Realtors said on Wednesday that existing home sales jumped 6.5 percent, well above analysts' expectations, to an annual rate of 5.39 million units.

Analysts said the August nonfarm payrolls data, due on Sept. 6, will be closely watched by investors and policymakers to determine whether improvement in the U.S. labor market is enough to justify scaling back stimulus.

Half the economists polled by Reuters expect the Federal Open Market Committee to begin slowing its asset purchases from September.

Brent crude oil fell below $110 a barrel on reports some Libyan oil exports might soon resume and on news the Seaway crude oil pipeline had shut, halting shipments from the U.S. Midwest to the Gulf Coast.

Brent futures for October settled down 34 cents at $109.81 a barrel. U.S. October oil fell $1.26 to settle at $103.85 a barrel. - Reuters