Oil prices retreated yesterday after their longest rally in more than five years while the dollar rose and Treasury yields were near recent peaks ahead of the release of minutes from the US Federal Reserve’s last meeting.
Falling oil prices put pressure on the energy sector, which was the biggest drag on Wall Street’s S&P 500 as it moved between positive and negative territory.
US Treasury yields were near multi-week or multi-month peaks as traders expected the Fed’s June meeting minutes – due late yesterday – would reinforce a hawkish shift in global central bank policy.
Trading was likely affected by lighter participation the day after the US July 4 Independence Day holiday and ahead of the Fed minutes and the US jobs report due tomorrow, said Randy Frederick, vice president of trading for Charles Schwab in Austin, Texas.
By late afternoon, the Dow Jones was down 13.03 points, or 0.06 per cent, the S&P 500 had gained 1.03 points, or 0.04 per cent, and the Nasdaq Composite had added 25.86 points, or 0.42 per cent.
Some stock investors were holding back ahead of the Fed minutes, which could provide insight on the central bank’s plans for interest rate hikes or possible US balance sheet reduction.
Benchmark 10-year Treasury yields hit a more than seven-week high of 2.357 per cent and three-year yields hit a roughly 3-1/2-month high of 1.598 per cent in morning US trading.
“The central banks all seem to be in agreement in kind of a hawkish signalling,” said John Herrmann, director of interest rates strategy at MUFG Securities in New York.
Analysts said yields remained near their recent highs due to the possibility that tomorrow’s US non-farm payrolls report would show a jump in jobs growth in June, which would also push yields higher.
The dollar edged higher against a basket of currencies and was last up 0.16 per cent as currency traders awaited clues on the Fed’s plan to reduce its balance sheet. US WTI crude futures were down 3.5 per cent at $45.41 a barrel after climbing for eight straight sessions to Monday as higher Opec exports and a stronger dollar turned sentiment more bearish.
Benchmark Brent crude futures were down almost three per cent, at $48.15 a barrel.
“If you see oil dip from here and head below the mid-$40 range, it’ll drag the (stock) market, said Schwab’s Frederick.