Dow Index Dips on Hawkish Fed Minutes, Bond Yields Rise as Powell Faces Down Trump

Frankfurt (Oct 18)  Global stocks weakened Thursday, with benchmarks in China falling to the lowest level in four years, after a hawkish set of minutes from last month's Federal Reserve meeting cemented the case for near-term rate hikes, pulling both the dollar and U.S. Treasury yields higher.

Minutes of the Fed's September 26 rate decision, which lifted the central bank's benchmark rate to a range of 2.25% to 2.5% for its third hike, suggested that Chairman Jerome Powell and his colleagues won't be swayed by criticism from President Donald Trump, who has said they're moving "too fast" to tighten policy and are threatening the health of the U.S. economy.

The Fed said a gradual approach to rate hikes, set against accelerating inflation and robust growth, would "balance the risk of tightening monetary policy too quickly, which could lead to an abrupt slowing in the economy and inflation moving below the Committee's objective, against the risk of moving too slowly, which could engender inflation persistently above the objective and possibly contribute to a buildup of financial imbalances."

The minutes helped boost the U.S. dollar index, which tracks the greenback against a basket of six global currencies, more than 0.2% to a one-week high of 95.77 in overnight trading and pushed benchmark Treasury bond yields 2.8 basis points higher to 3.21%, close to the 2011 high of 3.251% that triggered last week's sharp sell-off in U.S. stocks.

Overnight in Asia, the rising yields and firmer dollar pressured stocks around the region, with the Nikkei 225 falling 0.8% to close at 22,658.16 points while sharp, 2%-plus declines for benchmarks in China pushed stocks to a four-year low and dragged the MSCI Asia ex-Japan index 0.65% lower into the final hours of trading.

Curiously, there was little relief for currency markets after the U.S. Treasury stopped short of naming China as a currency manipulator in its twice-yearly report to Congress, with Treasury Secretary Steve Mnuchin instead expressing "particular concern" for the lack of transparency in Beijing over foreign exchange market interventions.

Early indications from U.S. equity futures suggest the rising bond yields may hold down gains on Wall Street later today, with contracts tied to the Dow Jones Industrial Average  indicating a 55 point opening bell decline while those linked to the S&P 500  suggest an 8 point pullback for the broader benchmark.

Dow components American Express  (AXP) and Travelers Companies (TRV) will report third quarter earnings before the start of trading today, with reports from PayPal Holdings (PYPL) , Philip Morris (PM) , PPG Industries (PPG) and Nucor (NUE) also expected throughout the session.



European stocks, however, were stronger by mid-day in Frankfurt, with the Stoxx 600 benchmark rising 0.2% amid a host of blue-chip earnings around the region, including packaged food giant Nestle (NSRGY) , which confirmed its full-year sales growth guidance of around 3%, and Carrefour SA (CRRFY) , the world's second-largest retailer, which had better-than-expected third quarter numbers in it home French market and its challenging Brazil segment.



Global oil prices also extended declines in early European trading, following yesterday's sharp declines sparked by a bigger-than-expected buildup in domestic crude stocks of 6.5 million barrels, a stronger U.S. dollar and persistent questions over near-term demand from China as the world's second-largest economy continues to show signs of slowing.

 

Brent crude contracts for December delivery, the global benchmark, were seen 80 cents lower from their Wednesday close in New York and changing hands at $79.25 per barrel, the lowest in at least a month, while WTI contracts for November delivery, which are more tightly liked to U.S gas prices, were seen 64 cents lower at $69.11 per barrel.

TheStreet

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