Stocks Struggle, Dollar Rallies Ahead of Federal Reserve Minutes
Stocks struggled for momentum while the dollar firmed Wednesday as investors waited for the minutes from the Federal Reserve’s July meeting.
The Stoxx Europe 600 reversed early gains to dip 0.4%, with all but the travel sector in the red. Futures pointed to a flat opening for the S&P 500, after U.S. stocks retreated from record highs on Tuesday.
The WSJ Dollar Index, which measures the dollar against a basket of 16 currencies, rose 0.34%.
Advertisement
Focus was firmly on the U.S. Federal Reserve. Minutes from the bank’s July meeting are due at 2 p.m. EDT, and could provide details on the central bank’s internal debate over the course of interest rates.
Officials left rates unchanged at their meeting on July 26-27, but opened the door to lifting rates later this year and indicated risks to the outlook had diminished since June.
Investors are still betting rates will hold at ultralow levels for quite some time, with Fed-fund futures pointing to a less than 50% chance of a rate rise by the end of the year, according to CME Group.
Japanese stocks led gains in Asia after Japanese authorities warned about the country’s soaring currency.Photo: Associated Press
But recent comments from Fed officials suggest the possibility of higher rates this year remains on the table. New York Fed President William Dudley said a rate increase as early as September is “possible,” supporting a rebound in the dollar.
“Given where unemployment is and where wage growth is, it wouldn’t take much to allow them to raise rates again,” said Jonathan Bell, chief investment officer at Stanhope Capital.
If interest rates start to rise, stocks and bonds could fall together, he said. Equity markets have risen to record highs not because of earnings growth, but because ultralow rates and quantitative easing have suppressed returns on bonds, making stocks look attractive in comparison, he added.
The yield on the 10-year U.S. Treasury note rose to 1.587% from 1.576% on Tuesday. Yields move inversely to prices.
Earlier, Japanese stocks led gains in Asia after Japanese authorities warned about the country’s soaring currency.
The dollar was last up 0.4% against the yen at ¥109.7600 after the greenback touched its lowest afternoon trade level against the yen since 2013 on Tuesday.
Shanghai and Hong Kong stocks ended little changed, even after China set out plans to open up its equity markets by approving a stock-trading link between Hong Kong and Shenzhen.
The program is expected to launch within 2016, but analysts were skeptical over how attractive this link would be to foreign investors, who can already invest in China’s domestic markets through other programs.
In commodities, Brent crude oil fell 1% to $48.72 a barrel, while gold shed 0.7% to $1,347 an ounce.
— Kenan Machado and David Harrison contributed to this article.
Write to Riva Gold at
riva.gold@wsj.com