US stocks and oil edged lower while US Treasury yields fell yesterday on expectations the Federal Reserve will signal this week that it is preparing to raise US interest rates.
An upbeat assessment of the US economy’s strength from Fed Vice Chairman Stanley Fischer on Sunday was viewed as raising the prospect of Fed Chair Janet Yellen flagging a rate rise at a meeting with world central bankers on Friday.
Treasury yields rose in overnight trading on Fischer’s comments but fell back in early trading. Prices on 30-year US Treasuries rose more than 1 point and yields fell to 2.23 per cent. Ten-year notes were last up nearly 0.40 per cent in price to yield 1.54 per cent. Bond yields move inversely to prices.
The dollar index, which tracks the greenback against a basket of six major currencies, shed gains and was up just 0.03 per cent at 94.54.
It had fallen about 1.3 per cent last week.
The euro turned slightly negative, losing 0.04 per cent against the dollar at $1.1323.
US stocks zig-zagged in early trading, opening lower, regaining momentum to turn positive, and then dropping again.
The Dow Jones industrial average fell 14.21 points, or 0.08 per cent, to 18,538.36, the S&P 500 lost 1.42 points, or 0.07 per cent, to 2,182.45 and the Nasdaq Composite added 3.19 points, or 0.06 per cent, to 5,241.57.
European stocks initially slipped but recouped losses to rise 0.09 per cent, getting a temporary boost in early trading after Syngenta’s proposed takeover by ChemChina was approved by US regulators.
Oil prices fell three per cent as China ramped up exports of refined products, US oil producers added rigs for an eighth straight week and prospects emerged for increased exports from Iraq and Nigeria.
Brent crude futures dropped 3.36 per cent, or $1.71, to $49.16 a barrel, while US crude oil futures settled 3 per cent, or $1.47, lower at $47.05.
Because of the production and storage overhang in fuel markets, Barclays said this month’s 20 per cent price rally is unwarranted and that oil prices of $50 or higher are unsustainable.
Investors are waiting for this week’s gathering of central bankers in Jackson Hole, Wyoming, on Thursday, with Yellen due to speak the following day.
Interest rate futures contracts indicate the market is pricing in about 50/50 odds of a US rate increase by the end of the year.
Emerging stocks and currencies also fell broadly yesterday. MSCI’s emerging equity index slipped 0.7 per cent to the lowest in more than a week. Many emerging countries borrow heavily in US dollars, meaning an appreciation in the greenback makes it more expensive for them to service their debt.
Gold fell to its lowest in two weeks on talk of possible US rate hikes, before recovering slightly.
Silver, copper and nickel prices also tumbled to fresh lows.
Spot gold was down 0.21 per cent at $1,338.43 an ounce, having hit a low of 1,331.35 an ounce at one stage.