A gauge of global equity markets moved to a near 13-month high yesterday and US Treasury yields fell for a second straight session as expectations for a rate hike by the US Federal Reserve this year continued to fade.
A weaker-than-expected August employment report tomorrow and Tuesday’s soft data on the services sector have crimped expectations the Fed will boost interest rates when it meets next week and for the rest of the year.
The probability for a rate hike in September stands at 15 per cent, according to CME’s FedWatch tool, while expectations for a hike in December have fallen back below 50 per cent. Investors had been pricing in greater chances of a rate hike this year after hawkish comments from several Fed officials. The Federal Reserve was scheduled to release its Beige Book – a summary of commentary on economic conditions yesterday. That will be parsed by investors for rate-hike clues.
The Dow Jones industrial average fell 37.8 points, or 0.2 per cent, to 18,500.32, the S&P 500 lost 2.88 points, or 0.13 per cent, to 2,183.6 and the Nasdaq Composite added 0.34 points, or 0.01 per cent, to 5,276.25.
US stocks were led lower by the consumer staples sector, off 0.8 per cent. General Mills shares lost 2.9 per cent to $68.86 after the company said its first-quarter organic net sales will be below its full-year guidance range.
Emerging market shares led the charge, touching their strongest levels since July 2015 as investors sought returns with interest rates likely to stay low for a prolonged period.
European shares reversed early losses, with the FTSEurofirst 300 up 0.3 per cent. MSCI’s all-country world index edged up 0.01 per cent after touching an intraday high of 424.71, its highest level since August 11.
Oil prices dipped as many market participants remained doubtful producers would reach a deal to freeze output. Brent futures were off 0.3 per cent at $47.11 and US crude shed 0.2 per cent at $44.73 a barrel.
Falling expectations for a rate hike sent US Treasury yields lower, with benchmark 10-year Treasury notes were up 1/32 in price to yield 1.5391 per cent, from 1.543 per cent on Tuesday. Yields fell as low as 1.519 per cent, a three-week trough.
Eurozone government bond yields fell as some investors bet the weak US data, which followed weaker-than-expected jobs numbers on Friday, would pressure the European Central Bank to ease monetary policy further. The ECB meets today.
The dollar was last down 0.3 per cent at 101.71 yen, having fallen as low as 101.18, its weakest since August 16, after a report from the Sankei newspaper that Bank of Japan policymakers are divided ahead of the central bank’s next meeting.