U.S. Stocks Sag After Fed Report; Oil Rallies: Markets Wrap

(Bloomberg) -- U.S. stocks fell to their lowest in a week and the dollar jumped as investors assessed the Federal Reserve’s signal that it’s in no rush to raise rates even as inflation rises to its target.

The S&P 500 ended near session lows after briefly pushing higher following the central bank’s decision to hold rates steady. Equities tumbled in the final hour of trading as concern mounted that the Fed may let inflation run hot as it gradually tightens. Treasury yields resumed a march to 3 percent and the dollar strengthened versus major peers, adding to equity headwinds.

Central bank officials may have signaled their willingness to allow inflation to exceed their 2 percent goal somewhat by adding a reference to the “symmetric” nature of their target.

“This week’s government data showed inflation moving closer to its 2 percent target. This adjustment is simply an acknowledgment by the Fed that its inflation forecast is, in fact, playing out as predicted,” Robin Anderson, a senior economist at Principal Global Investors, said in an email. “Since inflation was running below 2 percent, this language indicates that the Fed might be willing to let it run a little above 2 percent for a little while.”

The British pound and the euro traded lower. Emerging-market equities and currencies mostly dropped. Gold and oil gained after the Fed announcement.

Earlier, miners, automakers and technology shares led the Stoxx Europe 600 Index toward its best gain this week, shrugging off declines in most Asian markets.

As U.S. trade officials prepare to visit China for talks Thursday and Friday, the People’s Bank of China weakened its daily currency fixing by more than traders and analysts had expected. The move raises questions about whether it may devalue further to counter American import tariffs.

Terminal users can read more in our markets live blog.

These are some key events to watch this week:

• Eurozone producer prices are scheduled for tomorrow.
• The European Commission will present its spring economic forecasts, including growth, inflation, debt and deficit projections.
• Payroll gains in the U.S. probably picked up in April, with the unemployment rate forecast to drop to 4 percent, according to surveys of economists before the data reports due Friday.
• Earnings season continues with Tesla Inc. on Wednesday and HSBC Holdings Plc Friday.

And these are the main moves in markets:

Stocks

• The S&P 500 Index declined 0.7 percent as of 4:01 p.m. New York time.
• The Stoxx Europe 600 Index advanced 0.6 percent.
• The U.K.’s FTSE 100 Index gained 0.3 percent, its fifth consecutive advance.
• Germany’s DAX Index surged 1.5 percent to the highest in almost three months.
• The MSCI Emerging Market Index fell 1 percent, the biggest drop in a week.

Currencies

• The Bloomberg Dollar Spot Index gained 0.3 percent.
• The euro fell 0.4 percent to $1.1941.
• The British pound fell 0.4 percent to $1.3563.
• The Japanese yen declined 0.1 percent to 109.92 per dollar.

Bonds

• The yield on 10-year Treasuries gained one basis point to 2.97 percent.
• Germany’s 10-year yield climbed two basis points to 0.58 percent, the largest surge in more than a week.
• Britain’s 10-year yield climbed five basis points to 1.457 percent, the first advance in a week.

Commodities

• West Texas Intermediate crude gained 0.7 percent to $67.73 a barrel, the biggest gain in two weeks.
• Gold increased 0.1 percent to $1,304.55 an ounce.
• LME copper rose 1.1 percent to $6,820 a metric ton.

--With assistance from Adam Haigh Cecile Gutscher and Todd White

To contact the reporters on this story: Janine Wolf in New York at jwolf71@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, Andrew Dunn

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