Treasuries Rise, Dollar Dips as Economic Data Miss: Markets Wrap

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Markets Are Mixed Ahead of the Fed

Treasuries jumped and the dollar extended declines after data showed inflation cooled and retail sales contracted last month, signaling uneven economic growth as the Federal Reserve is set to deliver its latest rate decision.

The 10-year Treasury note yield fell five basis points and the greenback weakened versus major peers as the data cast doubt on the robustness of economic growth. U.S. stock futures were little changed after paring amid news that House Majority Whip Steve Scalise was among several wounded at a shooting in Virginia. The Stoxx Europe 600 Index headed for the highest in more than a week. The British pound fell as data signaled a further deterioration in living standards. Oil resumed its decline as industry data showed U.S. crude stockpiles expanded.

As stocks stabilize in the wake of the tech wobble, all eyes are now turning to the Fed as it sets borrowing costs in the world’s biggest economy. Policy makers are widely expected to raise interest rates, stick to previous guidance for another hike before year-end, and probably acknowledge that inflation is muted. The $4.5 trillion question will be what clues are given on the timetable and scale of eventual balance sheet reduction.

“Markets will probably mostly just trade sideways today in front of the Fed’s rate decision and press conference,” John Cairns, a Johannesburg-based currency strategist at Rand Merchant Bank, said in a client note. “The range of issues that the bank has to cover and the market’s sensitivities to even the slightest changes suggest some market volatility after the event.”

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Here are the key events to watch this week:

Data before the Fed is expected to show consumer-price growth slipped back to 2 percent in May with the core stuck at 1.9 percent. Real average earnings growth data will be released at the same time.
Lest we forget, central banks in Japan, Switzerland and Britain are also scheduled to weigh in with policy decisions this week. Investors have reined in expectations for a Bank of England interest-rate increase after the election shock.
EIA data today on oil inventories will be parsed to see if it confirms API figures from Tuesday.

And here are the major movers:

Stocks

The Stoxx Europe 600 Index gained 0.4 percent at 8:34 a.m. in New York, building on its 0.6 percent increase Tuesday. Tech shares rallied 1.3 percent.
S&P 500 futures advanced less than 0.1 percent. The gauge added 0.5 percent Tuesday and the Nasdaq 100 climbed 0.8 percent, rebounding from its worst two-day drop of the year.

Currencies

The pound slipped 0.2 percent to $1.2735 after it strengthened 0.8 percent Tuesday.
The Canadian dollar rose 0.3 percent, gaining for a fifth day. The euro fell 0.1 percent to 1.1200.
The Bloomberg Dollar Spot Index was little changed. The yen was 0.2 percent weaker at 110.31 per dollar.

Bonds

The yield on 10-year Treasuries was down five basis points to 2.15 percent.
The yield on U.K. gilts dropped three basis points to 1 percent after rising seven points on Tuesday.

Commodities

West Texas crude futures fell 0.7 percent to $46.13 a barrel. U.S. inventories climbed by 2.75 million barrels last week, the American Petroleum Institute was said to report.
Gold fell less than 0.1 percent to $1,265.84 an ounce.

Asia

Chinese data showed resilience in retail sales and industrial output, but equity markets there fell on concerns about a crackdown on the insurance industry.
The Shanghai Composite Index tumbled 0.7 percent and the CSI 300 Index dropped 1.3 percent, its biggest loss this year. The Hang Seng Index erased losses to add 0.1 percent and the Kospi Index in South Korea fell 0.1 percent.
Japan’s Topix Index closed down 0.1 percent, while Australia’s S&P/ASX 200 Index climbed 1.1 percent to its highest since May 16.