Stocks Pare Gains, Bonds Drop After Fed Minutes: Markets Wrap

(Bloomberg) --

U.S. stocks pared gains and Treasuries fell as Federal Reserve minutes fell short of signaling the central bank was ready to cut rates sharply.

The S&P 500 Index moved away from Wednesday’s highs and two-year Treasury yields surged after the minutes indicated the Fed is prepared to ease if economic conditions worsen, while hinting the committee didn’t view the July cut as part of an extended cycle of reductions. The two-year yield was briefly above the 10-year rate, a key signal watched by investors and seen as a harbinger of a recession. The bond market expects almost 65 basis points of interest-rate cuts by the end of the year.

Read: Fed Strategy Review Is Keeping Everything on the Table

“With hopes for Fed stimulus as the biggest driver of stocks’ buoyancy in the face of trade tensions and weakening global growth, today’s relatively dovish Fed minutes were about in line with investors’ high expectations,” said Alec Young, managing director of global markets research at FTSE Russell.

Stocks already started the day higher after solid results from retailers Target Corp. and Lowe’s Cos. defied recession fears. Traders also assessed the latest developments in the U.S.-China trade spat, with President Donald Trump predicting the U.S. will “probably” make a deal. Trump also said Wednesday that the economy is strong and kept up his relentless attack on the central bank, claiming that “the only problem we have is Jay Powell and the Fed.”

Elsewhere, most European bonds fell after Germany saw anemic demand for a 30-year bond offering zero coupon. The British pound slipped as the possibility of a so-called no-deal Brexit gained momentum. Oil slid as a surprise jump in U.S. diesel and gasoline stockpiles raised concerns about weakening demand.

Here are some notable events coming up:

• Thursday brings the Bank Indonesia rate decision and press conference with Governor Perry Warjiyo.
• Flash PMIs are due for the euro area on Thursday.
• Kansas City Federal Reserve Bank hosts its annual central banking symposium in Jackson Hole, Wyoming, starting Thursday. Fed Chairman Jerome Powell will give remarks on Friday.

Here are the main moves in markets:

Stocks

• The S&P 500 rose 0.8% to 2,924.43 as of 4 p.m. New York time.
• The Stoxx Europe 600 Index gained 1.2%.
• The MSCI Asia Pacific Index decreased 0.4%.

Currencies

• The Bloomberg Dollar Spot Index increased 0.1%.
• The euro dipped 0.1% to $1.1085.
• The British pound declined 0.4% to $1.2125.
• The Japanese yen fell 0.3% to 106.60 per dollar.

Bonds

• The yield on 10-year Treasuries rose three basis points to 1.58%.
• Germany’s 10-year yield climbed two basis points to -0.67%.
• Britain’s 10-year yield increased three basis points to 0.479%.

Commodities

• The Bloomberg Commodity Index advanced 0.1%.
• West Texas Intermediate crude declined 0.8% to $55.68 a barrel.

--With assistance from Adam Haigh, Robert Brand, Luke Kawa, Nancy Moran, Sophie Caronello, Brandon Kochkodin and Laura Curtis.

To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net;Sarah Ponczek in New York at sponczek2@bloomberg.net

To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Rita Nazareth

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