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Wall Street falls, US Dollar up on March Fed rate hike bets

Friday, 3 March 2017

 

NEW YORK: Wall Street pulled back from Wednesday’s records, led by financials, while the dollar traded at a seven-week high on positive U.S. data and growing expectations the Federal Reserve will soon raise interest rates.

Treasury yields also rose after Fed Governor Lael Brainard said late Wednesday that an improving global economy and a solid U.S. recovery meant it would be “appropriate soon” to raise rates – the latest of several Fed officials making hawkish statements this week.

Fed Chair Janet Yellen is set to speak on the economic outlook in Chicago on Friday in her last speech before the Fed’s 14-15 March meeting.

Federal funds futures prices suggest markets now see a 77.5% chance of a 25-basis-point rate hike in March, up from 66% on Wednesday and 35 % on Tuesday, according to CME Group’s FedWatch tool.

The prospect of higher rates pushed equities down on Thursday, compounding the pressure after Wednesday’s rally, in which all 3 major indexes hit records.

The stock market is “overdue for a correction” because valuations are so high, said Robert Phipps, a director at Per Stirling Capital Management in Austin.

The Dow Jones Industrial Average fell 112.58 points, or 0.53%, to 21,002.97, the S&P 500 lost 14.04 points, or 0.59%, to 2,381.92 and the Nasdaq Composite dropped 42.81 points, or 0.73%, to 5,861.22.

MSCI’s global stocks index was down 0.5% after touching an intraday record high.

The dollar index, which measures the greenback against a basket of six major currencies, was last up about 0.4% at seven-week highs, helped by data as well as rate hike bets. The number of Americans filing for unemployment benefits fell to a nearly 44-year low last week, pointing to further tightening of the labor market.

The greenback was last up 0.6% against the Japanese yen, the highest since 15 February, while the euro fell 0.4% to $1.0507.

In fixed income markets, U.S. Treasury yields pushed higher on the prospect of higher rates. U.S. 2-year yields hit their highest since August 2009, at 1.34%, while the 3-year yield hit a nearly 11-week high of 1.617%. The 10-year note yield hit a more than two-week high of 2.505%.

Oil prices fell for a third consecutive day after a record build-up in U.S. crude inventories and data showing Russian oil production cuts have stalled. Brent crude ended the session down 2.3% at $55.08 a barrel while U.S. crude settled down 2.3% at $52.61.

The dollar put metals prices under pressure. Copper fell 1.4% to $5,929.85 a tonne while gold fell 1% to $1,234.71 an ounce.

“The previous two occasions ahead of a Fed hike, we’ve seen gold weaken only to rally in the aftermath and that could potentially be seen once again,” said Ole Hansen, head of commodity strategy at Saxo Bank in Copenhagen.

Source by: Internet

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