Stock indices fell on Wednesday and the U.S. dollar hit a nearly two-year high, after the Federal Reserve released minutes from its last meeting that reinforced views that the central bank could tighten aggressively to curb inflation.
The benchmark 10-year US Treasury yield rose but was off its session high after the minutes, as oil prices fell sharply on the day.
Trading was choppy on Wall Street after the minutes, with stocks briefly paring losses and then extending them. The Nasdaq ended down more than 2%, driving declines among major indexes.
“From what I see, there’s nothing new here, but clearly we have rate hikes ahead of us and we have a shrinking balance sheet ahead of us,” said Tim Ghriskey, senior portfolio strategist at Ingalls & Snyder in New York.
“The Fed is determined to contain inflation, and we just hope and pray that there is a soft landing for the economy and not a hard landing that sends us into a recession.”
According to the minutes of the March 15-16 policy meeting, Fed officials “generally agreed” to cut central bank holdings by up to $95 billion per month as another tool in the fight against soaring inflation, even as the war in Ukraine tempered the first interest rate hike in the United States.
In March, the Fed raised rates for the first time since 2018 and moved away from accommodative monetary policy during the coronavirus pandemic.
The United States imposed new sanctions on Russia on Wednesday, as Russian forces bombarded Ukrainian towns.
The Dow Jones Industrial Average fell 144.67 points, or 0.42%, to 34,496.51, the S&P 500 lost 43.97 points, or 0.97%, to 4,481.15 and the Nasdaq Composite fell 315.35 points, or 2.22%, to 13,888.82.
The pan-European STOXX 600 index lost 1.53% and the MSCI gauge of stocks across the world lost 1.22%.
In the Treasury market, the yield on the 2-year note, which moves with expectations of higher rates, was little changed on the day after rising and falling about 8 basis points in each direction. The 10-year yield held the bulk of the session’s gains and the 2-10 yield curve steepened.
The 10-year Treasury yield last rose 5.5 basis points to 2.609%, while the 2-year Treasury yield was unchanged at 2.504%, leaving the curve 2-10 at 10.28 basis points, after an inverted start to the week.
The dollar index, which measures the value of the greenback against six major currencies, climbed to 99.7780, its highest level in nearly two years. It was last up 0.1% at 99.588.
Europe’s single currency benefited earlier from the strength in eurozone producer prices in February, which jumped 31.4% year-on-year in February.
The euro was last down slightly at $1.0896, after briefly hitting near-month lows at $1.0874.
Oil futures fell sharply as the dollar rose after Fed minutes and the oil market was set for International Energy Agency (IEA) member states to release 120 million barrels of strategic reserves to suppress price gains.
Brent crude futures settled $5.57, or 5.2%, at $101.07 a barrel, while U.S. crude fell $5.73, or 5.6%, at $96.23 a barrel.
First post: STI