Revived bets on U.S. interest rate rises this year saw the dollar turn defense into attack on Wednesday and halted a red-hot run for oil prices and emerging markets.
The dollar rebounded from 7-week lows against the yen JPY= as talk of as many two Federal Reserve rate hikes before new year from one Fed official and a move as soon as next month from another set traders up for Fed meeting minutes due later in the day.[/FRX]
European stocks dithered, as an opening push higher quickly reversed to leave London’s FTSE .FTSE and Frankfurt’s DAX .GDAXI and Paris’s CAC 40 .FCHI down 0.2 to 0.8 percent after Asia had eased back from one-year highs overnight.
Oil slipped back from 5-week highs as the dollar’s muscle-flexing compounded doubts about whether upcoming talks between top oil exporter countries would result in firm measures to rein in ballooning oversupply.
Group head of multi-asset portfolios at GAM, Larry Hatheway, said attention was firmly on the Fed minutes and particularly why the bank’s last meeting ended with a notably cautious statement.
“It wasn’t really about Brexit. It is not even about the world economy which isn’t in great shape but is somewhat improved from the first quarter fears and its surely not about the cost of capital,” Hatheway said.
“So one presumes the caution reflects a thought process about a much lower equilibrium real interest rate …or possibly the fact that inflation is just not accelerating, which was corroborated to a degree by CPI data yesterday.”
With stocks on the back foot, bonds were back in favor, having lost ground for the last two sessions. [GVD/EUR]
Yields on two-year U.S. government bonds notes US2YT=RR briefly touched a near three-week high of 0.758 percent, but they failed to reach the July peak of 0.778 percent and were last at 0.750 percent.
European yields nudged 2-4 basis point lower with Spanish bonds boosted ahead of a meeting later that could pave the way for a new government in Madrid after eight months of limbo.