Stocks Slump, Bonds Waver With Fed Taper in Focus: Markets Wrap

(Bloomberg) -- Stocks slid as the Federal Reserve signaled that a decision on a reduction of its bond-buying program could happen in 2021. Treasuries and the dollar were little changed.

The S&P 500 extended losses into a second day after minutes of the Federal Open Market Committee’s July gathering said most officials agreed last month they could start slowing the pace of asset purchases later this year. While the record shows they don’t yet have agreement on the timing or pace of tapering, most had reached consensus on keeping the composition of any reduction in Treasury and mortgage-backed securities purchases proportional.

“The minutes reflect a Fed that is prepared to accelerate its taper timeline to perhaps the next few months,” said Sean Bandazian, an investment analyst at Cornerstone Wealth. “There is still reason to believe we will see volatility throughout areas of the market with high sensitivity to interest rates.”

Fed Chair Jerome Powell will have an opportunity to delve into the policy and economic outlook during next week’s Jackson Hole symposium -- the central bank’s most prominent annual conference.

More comments:

• “Fed tapering is clearly in training camp mode, with Jackson Hole likely being a preseason game, and either the September or most likely the November FOMC meeting being the time to announce how they will pullback stimulus,” wrote Edward Moya, senior market analyst at Oanda.
• “It’s clear from the minutes that the Fed isn’t ready to start tapering yet, but they are leaning towards making an announcement by the end of the year at the latest,” said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance.
• “While the Fed minutes reveal more conviction in terms of starting to taper this year, they made the bold point that there’s no connection between tapering and rate hikes,” wrote Mike Loewengart, managing director of investment strategy at E*Trade Financial.

Earlier Wednesday, St. Louis Fed President James Bullard said he would like to see the tapering of the asset-purchase program done by the first quarter of 2022. Several other officials, including Robert Kaplan of Dallas and Esther George of Kansas City, have urged the central bank to begin removing stimulus as soon as the September meeting. Chair Powell and Vice Chairman Richard Clarida have suggested they would like to see further progress before considering a move to taper.

In late trading, Robinhood Markets Inc. -- the pioneer of commission-free trading apps -- sank after reporting its first results since going public.

Elsewhere, oil dropped to the lowest since May after a surprise increase in U.S. gasoline inventories signaled fuel demand is under threat with the delta variant menacing the nation.

Read: CME Denies It’s in Talks for $16 Billion Takeover of Cboe

Here are some events to watch this week:

• Bank Indonesia rate decision and Governor Perry Warjiyo briefing Thursday
• U.S. initial jobless claims, leading index Thursday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 1.1% as of 4 p.m. New York time
• The Nasdaq 100 fell 1%
• The Dow Jones Industrial Average fell 1.1%
• The MSCI World index fell 0.6%

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro was unchanged at $1.1710
• The British pound rose 0.1% to $1.3756
• The Japanese yen fell 0.2% to 109.80 per dollar

Bonds

• The yield on 10-year Treasuries was little changed at 1.27%
• Germany’s 10-year yield declined one basis point to -0.48%
• Britain’s 10-year yield was little changed at 0.57%

Commodities

• West Texas Intermediate crude fell 2.7% to $64.78 a barrel
• Gold futures were little changed

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