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Sydney - Global stocks retreated as oil extended Wednesday’s losses. The dollar advanced after Federal Reserve chair Janet Yellen suggested the strength of the US labour market will ultimately prevail over recent weakness in inflation.
Energy and raw-material shares slipped as oil traded below $45 a barrel. The dollar rose against most major currencies after the Fed raised interest rates for the second time.
Australian bonds followed Wednesday’s rally in Treasuries amid data showed US consumer prices excluding volatile food and fuel had the smallest year-over-year gain since May 2015. US equity futures fell on a report that investigators are probing whether President Donald Trump attempted to obstruct justice.
Yellen played down a softening of price pressures in the last few months and voiced confidence the central bank was on course to hit its 2% inflation goal. The Fed’s actions and words struck a careful balance between showing resolve to continue tightening in response to falling unemployment while acknowledging the persistence of unexpectedly low inflation this year.
“The global reflationary rebound that began in early 2016 remains intact, but momentum is slowing,” said Mikio Kumada, Hong Kong-based global strategist at LGT Capital Partners. “The upswing in the tangible economic data has generally lagged the sentiment surge, leaving room for a reality check.”
Policy makers agreed to raise their benchmark lending rate for the third time in six months, maintained their outlook for one more hike in 2017 and set out some details for how they intend to shrink their $4.5trn balance sheet this year. Hong Kong followed the Fed’s move, elevating the risk of a selloff in the world’s priciest housing market.
Political drama in Washington also weighed on markets. The special counsel investigating Russia’s interference in the 2016 election plans to interview two top US intelligence officials about whether Trump sought their help to get the FBI to back off a related probe of former National Security Adviser Michael Flynn, according to three people familiar with the inquiry.
Here are the key events investors will be watching this week:
The Bank of Japan concludes a two-day meeting on Friday. While economists don’t expect any significant changes to monetary policy, they will parse the BOJ’s statement and Governor Haruhiko Kuroda’s comments for clues to the outlook for inflation.
Central banks in Switzerland and Britain are also scheduled to weigh in with policy.
Here are the major movers:
Stocks
S&P 500 futures dropped 0.4% as of 09:26. The gauge fell 0.1% on Wednesday, while the tech-heavy Nasdaq indices retreated 0.4%. The Dow Jones Industrial Average edged higher to a fresh record. The Stoxx Europe 600 Index dropped 0.6%. Japan’s Topix declined 0.2% and South Korea’s Kospi lost 0.5%.
Australia’s S&P/ASX 200 Index fell 1.2%, with financial shares tumbling while energy and raw-material companies dropped more than 2.2%. Hong Kong’s Hang Seng slid 1.1% to the lowest since May 29, while the Shanghai Composite Index advanced 0.1%.
Currencies
The Bloomberg Dollar Spot Index rose 0.1%, after three days of losses.The yen was little changed at 109.53 per dollar, after climbing 0.5% on Wednesday. The British pound weakened 0.2% to $1.2730 and the euro retreated 0.3% to $1.1190.
The Australian dollar jumped 0.2% after employment surged in May, led by a rebound in full-time positions, sending the jobless rate to the lowest level in more than four years. The New Zealand dollar fell 0.6% after data showed the economy grew less than expected in the first quarter as a rebound in dairy production was offset by a drop in construction.
Bonds
The yield on 10-year Treasury notes rose one basis point to 2.14%, after dropping 8.5 basis points on Wednesday to 2.13%, the lowest level since November. Australian benchmark yields lost 5 basis points to 2.36%, paring steeper declines after the jobs report.
Commodities
West Texas crude futures fell 0.3% to $44.61 a barrel after dropping 3.7% the previous session as US gasoline supplies unexpectedly rose for a second week.
Oil has declined almost 8% this month amid speculation increasing US supplies will offset production curbs by OPEC and its allies. Gold was little changed at $1 261.16 an ounce, after sliding 0.5% the previous day, as investors weigh the probability of future US interest rate hikes.
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