Dow, Nasdaq sag on Fed minutes

2012-07-12 08:29

New York - The Dow and Nasdaq fell on Wednesday, while the dollar hit a two-year high against the euro after minutes from the Federal Reserve's June meeting showed any additional bond buying by the Fed was likely to happen only if the US economy gets weaker.

The benchmark Standard & Poor's 500 Index closed flat, but the Dow slipped 0.4% and Nasdaq lost 0.5% for the day. The minutes from the Fed's June 19-20 meeting suggested that most policymakers were not yet ready to take bolder action on the sluggish economy.

The dollar extended gains against the euro, which hit a two-year low of $1.2211 after the minutes. Gold ended nearly flat, trimming its gains following the release of the Fed minutes.

Crude oil futures finished sharply higher, despite mixed signals from the Fed. A tight supply outlook in the North Sea and a drop in US crude stockpiles in the latest week helped lift oil prices.

Investors were hoping the minutes would suggest the US central bank was getting closer to another round of stimulus.

"The minutes do not on the surface suggest a sizable body of support for further immediate action, although it should be borne in mind that the comments were made prior to recent data disappointments," said Peter Buchanan, economist at CIBC World Markets in Toronto.

The Dow Jones industrial average slipped 48.59 points, to close at 12,604.53. The Standard & Poor's 500 Index inched down just 0.02 of a point, to 1,341.45. The Nasdaq Composite Index declined 14.35 points, to finish at 2,887.98.

Safety is the name of the game

The bond market did not react to the minutes. But US benchmark 10-year Treasury note yields fell to near-record lows after a $21bn sale of new notes saw huge demand in a flight-to-safety bid from investors who buy directly from the government.

Germany sold 10-year government debt at record low yields earlier in the day.

"It's very much a grab for safe assets internationally," said Carl Lantz, interest-rate strategist at Credit Suisse in New York.

The 10-year US Treasury note traded as low as 1.45% - just 1 basis point higher than their record low - immediately after the auction. The note then bounced back to about 1.52%, near where it traded before the sale.

Oil gains, gold flat

Crude oil trimmed earlier gains after the minutes also showed that the Fed's staff had lowered its forecast for gross domestic product and projected growth rate to "not materially" exceed potential output until 2014.

"The Fed's lower GDP forecast and lack of clarity on further easing measures has undermined the rally in crude oil," said John Kilduff, partner at Again Capital LLC in New York.

But oil's pullback was short-lived.

Brent crude oil, which fell more than 2% on Tuesday, rose back above $100 a barrel after the Organisation of the Petroleum Exporting Countries left its 2012 world oil demand growth forecast unchanged at 0.9 million barrels per day.

Opec produces one-third of global oil.

Brent prices also got a lift from news that the combined daily loading volume fo the four benchmark North Sea crude oil streams was expected to fall to a record low in August, based on Retuers calculations, traders said.

US government petroleum inventories showed a drawdown last week of 4.7 million barrels, almost four times the forecast in a Reuters poll, but it was overshadowed by larger-than-expected gains in gasoline and distillate stockpiles.

Brent crude for August delivery rose $2.26 to settle at $100.23 a barrel. US crude advanced $1.90 to settle at $85.81 a barrel.

Gold ended nearly flat as spot gold prices rose $11.89 to $1 576.30 an ounce.

US COMEX August gold futures settled down $4.10 at $1 575.70 an ounce.

The Reuters/Jefferies CRB Index of 19 commodities was up 2.15 points, or 0.74%, at 290.79.

Earlier in Europe, equities steadied, with a weak start to the second-quarter reporting season from the autos and luxury sectors denting sentiment, though technical support levels put a lid on losses in thin and jittery summer trading.

The region's sluggish response to the eurozone's debt crisis sent 10-year German bond yields to new lows.

The FTSEurofirst 300 index of top European companies closed flat at 1,039.12.

The MSCI index of global stocks also finished flat, down just 0.02% at 308.17.

The dollar rebounded and was up against a basket of major trading-partner currencies, with the US Dollar Index up 0.10% at 83.483, slightly off a 52-week high at 83.61.

The euro fell against most major currencies on anxiety over how policymakers plan to tackle the debt crisis after it appeared there would be no quick judgment from a German court on the eurozone's bailout fund.

The euro was down 0.05% at $1.2243.

Germany sold just over €4bn of 10-year government bonds at record low yields, with demand solid due to concerns that the recently agreed anti-crisis measures may not be powerful enough to overcome the eurozone debt crisis.

Yields on 10-year German debt in the secondary market were lower at 1.271%, off the average auction result of 1.31%.