Global equities and U.S. Treasury yields were lower on Wednesday as recent strong economic data had investors worried about aggressive interest rate hikes even though minutes of the Federal Reserve’s last meeting showed officials at the Jan. 31 to Feb. 1 meeting favored moderation.
A solid majority of Fed policy makers at the meeting agreed it was appropriate for the central bank to raise rates by 25 basis points, even as they reiterated that the inflation outlook would keep driving further rate actions, the minutes showed. Only a few officials supported a rate hike of 50 basis points.
But since then, strong economic data demonstrated the resilience of the U.S. economy and heightened worries of a longer rate-tightening cycle.
“The minutes are a little bit outdated because of the data that came out after the Fed discussion and it’s not as important as people think,” said Moustapha Mounah, portfolio manager at James Investments in Dayton, Ohio.
The MSCI world equity index (.MIWD00000PUS), which tracks shares in 50 countries, was down 0.45%. European stocks (.STOXX) shed 0.33%.
Wall Street stocks finished a choppy session lower following the Fed’s minutes. The Dow Jones Industrial Average (.DJI) fell 0.26% to 33,045.09, the S&P 500 (.SPX) lost 0.16% to 3,991.05 and the Nasdaq Composite (.IXIC) added 0.13% to 11,507.07.
U.S. Treasury yields retreated after surging to three-month highs. Benchmark 10-year yields made gains but were still lower at 3.9273% after the release of the minutes.
The bond market has already priced in more rate hikes but the stock market hasn’t repriced to reflect all of the movement in the rates,” Reuters reported Mounah adding.
St. Louis Fed President James Bullard, a non-voting member of the Fed’s rate-setting committee this year, on Wednesday reiterated his view that a Fed policy rate in the range of 5.25% to 5.5% would be adequate to bring inflation toward the central bank’s 2% goal.
The U.S. Treasury yield curve that measures the gap between yields on two- and 10-year Treasury notes , seen as an indicator of economic expectations, remained deeply inverted at minus 77.90 basis points.
“If the most hawkish guy, who is a non-voting member, is at 75 basis points of additional hikes, then maybe the consensus is 50 basis points and that is a little lower than the market,” said Thomas Hayes, chairman at Great Hill Capital in New York.
The U.S. dollar gained due to the unexpected strength of the American economy revealed in recent economic data, notwithstanding interest rate hikes by the Fed. The dollar index rose 0.346%, with the euro up 0.03% to $1.0604.
Oil prices fell 2% on growing concerns over oil demand as the Fed aims to keep hiking rates to reduce surging consumer prices. Brent crude futures settled 3% lower at $80.60 per barrel. The West Texas Intermediate crude futures (WTI) 3% to end at $74.05 a barrel.
Gold prices fell as the U.S. dollar gained. Spot gold dropped 0.01% to $1,824.86 an ounce, while U.S. gold futures fell 0.43% to $1,832.00 an ounce.
