Bonds Edge Higher as Traders Shake Off Fed Minutes: Markets Wrap

(Bloomberg) — US stocks eased off session lows and bonds inched up as traders sifted through the minutes of the Federal Reserve’s last meeting to see if wagers on interest rate cuts had gotten too aggressive.

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The S&P 500 slid 0.4% while the Nasdaq 100 trimmed a 1.1% drop as investors continued to retreat from tech stocks. The dollar strengthened for a fourth day, the longest run since November. Tesla Inc. slumped while crypto-tied stocks floundered as Bitcoin erased most of its gains this year.

Fed policymakers said rates could stay restrictive for longer than anticipated last month, while noting rates cuts could emerge before the year is out. Swaps traders had been factoring in a full quarter point cut to the benchmark rate by the March meeting as recently as last week.

Treasury yields hit session lows with the rate on the 10-year reversing after climbing just above 4%, the highest since mid-December, earlier in the day.

“Overall, it was a hawkish update from the Fed,” said Ian Lyngen at BMO Capital Markets, though “the tone has apparently fallen on indifferent ears.”

Fed Chair Jerome Powell ignited a markets rally last month after indicating that policymakers had discussed lowering interest rates. His colleagues at the US central bank then attempted to walk back market enthusiasm for quicker and deeper rate cuts in the days that followed.

Richmond Fed President Thomas Barkin held off on giving a forecast on when the US central bank’s first rate cut would occur. “Conditions are ever evolving,” he said in prepared remarks Wednesday. “So too will our approach. So, buckle up. That’s the proper safety protocol even if you expect a soft landing.”

Story continues

Read more: Fed’s Barkin Says Soft Landing Looks More Likely, Not Inevitable

The Institute for Supply Management’s manufacturing gauge hit 47.4 last month, data out Wednesday showed. The index has remained below the 50 level — indicating a contraction – since late 2022. Separate data showed the number of job openings fell slightly in November from the prior month’s revised number.

“Overall, the labor market remains strong, but demand is cooling, coming into better balance with supply,” Rubeela Farooqi, chief US economist at High Frequency Economics wrote. “These data will be welcome news for policymakers and support the Fed’s view that the next move in rates will be lower, likely in Q2.”

Friday’s jobs report could cement the cooling narrative, according to ING’s James Knightley. The makeup of jobs growth is “almost as important as the payrolls number itself in determining the prospect for rate cuts in 2024,” he said.

Elsewhere, a slump in Bitcoin on Wednesday saw the cryptocurrency erase almost all gains it had made so far this year. Stocks tied to the sector slipped with MicroStrategy Inc. sliding about 8% and Coinbase Global Inc. dropping roughly 3%.

“The year is certainly off to a rough start, which may motivate more profit taking, after the outsized gains of last year, but the fundamentals haven’t changed, nor have earnings estimates,” according to Louis Navellier of Navellier & Associates. “There are opportunities in good stocks with attractive values being dragged down for no good reason.”

In corporate news, Walt Disney Co.’s Chief Executive Officer, Bob Iger, was drumming up investor support as he seeks to stave off pressure from billionaire activist Nelson Peltz. Barrick Gold Corp. is sounding out some of First Quantum Minerals Ltd.’s major investors to gauge their support for a potential takeover.

Cigna Group slumped after a Wall Street Journal report it was near a deal to sell its Medicare business for $3 billion to $4 billion.

Key events this week:

• China Caixin services PMI, Thursday

• Eurozone S&P Global Eurozone Services PMI, Thursday

• US initial jobless claims, ADP employment, Thursday

• Eurozone CPI, PPI, Friday

• US nonfarm payrolls/unemployment, factory orders, ISM services index, Friday

• Richmond Fed President Tom Barkin — an FOMC voter in 2024 — speaks, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 0.3% as of 2:45 p.m. New York time

• The Nasdaq 100 fell 0.6%

• The Dow Jones Industrial Average fell 0.3%

• The MSCI World index fell 0.6%

Currencies

• The Bloomberg Dollar Spot Index rose 0.2%

• The euro fell 0.2% to $1.0923

• The British pound rose 0.4% to $1.2669

• The Japanese yen fell 0.9% to 143.24 per dollar

Cryptocurrencies

• Bitcoin fell 5.3% to $42,723.95

• Ether fell 6.4% to $2,215.81

Bonds

• The yield on 10-year Treasuries declined three basis points to 3.90%

• Germany’s 10-year yield declined four basis points to 2.02%

• Britain’s 10-year yield was little changed at 3.64%

Commodities

• West Texas Intermediate crude rose 3.4% to $72.75 a barrel

• Spot gold fell 1% to $2,037.57 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Alex Nicholson, Tassia Sipahutar, Pearl Liu, Alice Gledhill, James Hirai and Joanna Ossinger.

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