Yields on US Treasuries climbed while stocks slipped as traders digested commentary from Federal Reserve officials’ last meeting.
(Bloomberg) — Yields on US Treasuries climbed while stocks slipped as traders digested commentary from Federal Reserve officials’ last meeting.
The S&P 500 closed down 0.2% following the release of the minutes of the Fed’s June meeting which indicated hawkish leanings from some voting members. In late trading, Spirit Airlines Inc. advanced 2.6% after JetBlue Airways Corp. said it was scrapping plans for an alliance with American Airlines Group Inc. to focus instead on its pending merger with Spirit. JetBlue shares slid 1.5%.
The yield on policy-sensitive two-year Treasuries inched up to 4.94%, while the 10-year rose to 3.93%. That inverted yield curve is often read as a sign of a coming economic slump. The Fed’s June gathering threw Wall Street for a loop as officials paused their rate-hiking cycle after 10 consecutive increases. The central bank has forecast two more rate increases this year which could further weigh on economic growth and corporate profits. The next rate decision is due in three weeks.
“I am the most bearish I have ever been on the economy without being in a recession, and it’s because of the yield curve, the contraction of money and QT at the same time they are hiking rates,” Ed Hyman, founder and chairman of Evercore ISI, said on Bloomberg Television.
Yet, many parts of the equity market have largely shrugged off the threat of higher interest rates, with the Nasdaq 100 ending the day little changed, bolstered by gains in mega-cap stocks including Meta Platforms Inc. and Alphabet Inc.
“Either the market does not believe the Fed’s going to raise a lot more, or the market is very disconnected from reality. Because if the Fed raises, let’s say another 50 basis points, then the probability of a recession increases pretty substantially. And these multiples become more difficult to justify,” said Chetan Jindal, chief investment officer of Greenwich Ivy Capital, LLC.
Swaps traders have not fully factored in two more quarter-point hikes, though bets on the Fed easing up on its tightening policy have been pushed further down the road.
Wednesday’s minutes showed division among members of the Federal Open Market Committee where — despite the unanimous decision to pause — some would have preferred another hike in June amid a tight labor market.
Read more: Fed Minutes Reveal Divisions Over Decision to Pause in June
“This adds to the high probability the Fed hikes again on July 26,” Ian Lyngen, a strategist with BMO Capital Markets wrote. “The FOMC minutes deliberately left investors with the impression that June’s pause was a close call and that a July hike is the committee’s base case scenario.”
Investors will be closely watching Friday’s June employment report will for signs of a cooling labor market. Lyngen expects the upcoming data to fuel debate over whether the Fed will hike or pause in September.
A gauge of the dollar rose against all of its Group-of-10 peers while gold slid. Crude touched $72 a barrel after Saudi Arabian and Russian output cuts earlier this week.
Key Events This Week:
- New York Fed President John Williams in “fireside chat” at meeting of the Central Bank Research Association at the New York Fed, Wednesday
- US initial jobless claims, trade, ISM services, job openings, Thursday
- Dallas Fed President Lorie Logan speaks on a panel about the policy challenges for central banks at CEBRA meeting, Thursday
- US unemployment rate, nonfarm payrolls, Friday
- ECB’s Christine Lagarde addresses an event in France, Friday
Some of the main moves in markets today:
Stocks
- The S&P 500 fell 0.2% as of 4:02 p.m. New York time
- The Nasdaq 100 was little changed
- The Dow Jones Industrial Average fell 0.4%
- The MSCI World index fell 0.5%
Currencies
- The Bloomberg Dollar Spot Index rose 0.2%
- The euro fell 0.2% to $1.0854
- The British pound was little changed at $1.2701
- The Japanese yen fell 0.1% to 144.67 per dollar
Cryptocurrencies
- Bitcoin fell 1.2% to $30,445.29
- Ether fell 1.7% to $1,908.46
Bonds
- The yield on 10-year Treasuries advanced eight basis points to 3.93%
- Germany’s 10-year yield advanced two basis points to 2.48%
- Britain’s 10-year yield advanced eight basis points to 4.49%
Commodities
- West Texas Intermediate crude rose 3.1% to $71.92 a barrel
- Gold futures fell 0.3% to $1,923.80 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Cecile Gutscher, Robert Brand, Richard Henderson, Ksenia Galouchko and Tassia Sipahutar.
More stories like this are available on bloomberg.com
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