[1/2]Raindrops hang from a Wall Street sign in front of the New York Stock Exchange in Manhattan in New York City, New York, U.S. October 26, 2020. REUTERS/Mike Segar/File Photo
- Fed minutes leave rate expectations intact
- Stock indices close lower
- Treasury yields and US dollar rise
- WTI gains better than Brent after US holiday
- Graphic: World exchange rates
NEW YORK/LONDON July 5 (Reuters) – The MSCI global equity index lost ground on Wednesday after weaker-than-expected data from overseas and investors watched a tightening of US-China trade tensions while anticipating the upcoming U.S. Economic data and the second quarter waiting merits.
Investors ignored Federal Reserve minutes released on Wednesday, which showed the Fed was unanimous in its decision in June to hold interest rates steady to buy time to assess whether further rate hikes were needed. The minutes also indicate that most members ultimately expect monetary policy to tighten further.
“If we continue to see inflation cooling, there may not be any further rate hikes, but nothing has been announced in the Fed minutes,” said Michael James, managing director of equities trading at Wedbush Securities in Los Angeles. “We’ll have a much better sense when we get another key data point on Friday with the jobs report and next week’s inflation data.”
A dampener for overseas equities was the earlier release of a survey showing that China’s services sector – which had been recovering since COVID-19 lockdowns were lifted – expanded at its weakest pace in five months in June, showing signs of a China’s stalled recovery boosted the world’s second largest economy.
A US Commerce Department spokesman said Wednesday that the United States is “firmly” opposed to the export controls on gallium and germanium announced by China on Monday and that Washington will consult with its partners and allies. Following China’s abrupt decision to restrict exports of two metals commonly used in semiconductors and electric vehicles, companies have been struggling to secure supplies before the August 1 deadline.
“If you look at the global level, everything that has come out (from China and Europe) shows that growth is still slowing down and that the geopolitical backdrop between the US and China will be a bit of a headache,” said Jack Janasiewicz , Senior Portfolio Strategist at Natixis Investment Managers Solutions.
Traders are betting on an 88.7 percent chance that the Fed will hike rates by a quarter of a point in July after pausing last month, but have only a 17.7 percent chance, according to CME Group’s FedWatch tool Chance of another rate hike in September priced in.
Natixis’ Janasiewicz said investors are likely to remain stationary given Friday’s US jobs report and next week’s inflation numbers, as well as the start of second-quarter corporate earnings season in mid-July.
“Markets are waiting for the economic data,” said Paul Nolte, senior wealth advisor and market strategist at Murphy & Sylvest Wealth Management. “As the Fed is data dependent, so is the market.”
The Dow Jones Industrial Average (.DJI) fell 129.83 points, or 0.38%, to 34,288.64, the S&P 500 (.SPX) lost 8.77 points, or 0.20%, to 4,446.82 and the Nasdaq Composite (.IXIC) fell 25.12 points, or 0.18%, to 13,791.65.
The pan-European STOXX 600 Index (.STOXX) was down 0.73% and the MSCI International Equity Index (.MIWD00000PUS) was down 0.46%, ending a six-day winning streak.
Emerging market equities (.MSCIEF) lost 0.80%. MSCI’s broadest index of Asia-Pacific stocks outside of Japan (.MIAPJ0000PUS) closed 0.93% lower, while Japan’s Nikkei (.N225) lost 0.25%.
On the currency side, the US dollar edged up against other majors after Fed minutes reinforced expectations of another rate hike later in the month.
The dollar index rose 0.272%, while the euro fell 0.22% to $1.0853. The Japanese yen weakened 0.14% against the greenback to 144.66 per dollar, while sterling last traded at $1.2701, down 0.09% on the day.
US Treasury yields were mostly higher on Wednesday after weaker-than-expected numbers for US-made goods, and minutes from the Fed’s June policy meeting did little to change expectations about the trajectory of interest rate hikes .
Benchmark 10-year bonds rose 7.3 basis points to 3.932% from 3.858% late Monday. The 30-year bond was last up 5.3 basis points from 3.877% to 3.9295%. The 2-year bond was last up 0.2 basis points from 4.94% to 4.9424%.
US crude gained ground, narrowing the price gap to global benchmark Brent. This comes in post-holiday response to supply cuts announced Monday by top oil exporters Saudi Arabia and Russia. And market participants awaited demand data from the July 4 US holiday weekend, which typically marks peak travel season in the US.
US crude rose 2.87% to $71.79 a barrel and Brent was at $76.65, up 0.52% on the day.
Reporting by Sinéad Carew and Lewis Krauskopf in New York, Tom Wilson in London and Stella Qiu in Sydney; Additional reporting by Dhara Ranasinghe. Adaptation by Sam Holmes, Helen Popper, Will Dunham and Christina Fincher
Our standards: The Thomson Reuters Trust Principles.
Tom Wilson
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