Dollar Gains, Stocks Slip Before Fed as Oil Slumps – 14 March, 2017

U.S. stocks slumped as crude tumbled past $48 a barrel after Saudi Arabia disclosed an increase in production, while the dollar advanced as investors gear up for Wednesday’s Federal Reserve decision.

Oil slid more than 1.4 percent, while the S&P 500 Index headed for its worst loss in two weeks after OPEC data showed Saudi Arabia reversed one third of the production cuts. Energy, industrial and materials shares led losses. The dollar was in demand before an anticipated Fed rate hike, and the pound slid as the British Prime Minister won permission to trigger the country’s departure from the EU. The yield on 10-year Treasuries fell below 2.60 percent. The CBOE Volatility Index rose 8.4 percent, the most in a month.

Oil’s drop interrupted the calm that’s gripped markets ahead of central bank decisions, European political drama and a raft of economic data that could set the tone on financial markets for weeks to come. With the Fed all but certain to raise rates, investors have been weighing how oil’s precarious level and looming inflation readings could impact the central bank’s path for future moves. Tomorrow’s election in the Netherlands will deliver a reading on the state of populism in Europe as races in France and Germany heat up.

“The market is waiting,” said Peter Schaffrik, global macro strategist at RBC Europe Ltd. “Moves today have been fairly muted. The Fed is clearly on everyone’s mind. The rate hike is a foregone conclusion, so it’s the press conference that’s really relevant.”

U.S. trading 16 percent lower than the 30-day average at this time of day as a late-winter storm is blanketing the eastern part of the country in snow. Airlines canceled thousands of flights, wholesale power prices surged and natural gas futures gained as the storm spun up the Atlantic Coast. Commodities and stock markets were still set to open and the federal government opened after a 3-hour delay, impacting the timing of data releases.

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What’s on the watch list this week:

• Fed rate decision at 2 p.m. New York time on Wednesday.
• The Bank of England, Swiss National Bank, Bank of Japan and Bank Indonesia are expected to keep monetary policies unchanged on Thursday.
• The Netherlands will go to the polls on March 15.
• G-20 finance ministers will gather in Germany for a series of meetings.

Here are the main market moves:

Stocks

• The S&P 500 slipped 0.3 percent to 2,365.40 at 4 p.m. in New York, after the benchmark gauge ended Monday virtually unchanged. The measure has fallen 0.7 percent since Fed Chair Janet Yellen signaled a rate hike Wednesday was virtually certain.
• Energy producers tumbled 1.1 percent, while industrial shares lost 0.9 percent.
• The Stoxx Europe 600 Index fell 0.3 percent. Banking stocks retreated, with the sector index falling 1 percent following recent sharp gains made in the wake of the ECB’s meeting last week.
• The MSCI Emerging Market Index advanced 0.1 percent, for a third day of gains.

Currencies

• The Bloomberg Dollar Spot Index gained 0.3 percent, as investors speculated whether the central bank will provide hawkish guidance that could reignite the currency’s sputtering rally.
• The British pound led losses in major currencies, weakening by as much as 0.9 percent before trading 0.5 percent lower at $1.2167.
• The euro slipped 0.2 percent to $1.0637, following a 0.2 percent drop Monday.
• Russia’s ruble slid with oil, falling 0.9 percent

Bonds

• The yield on 10-year Treasury notes fell below 2.60 percent, as oil’s slide curbed inflation expectations even as gains were capped after the February Producer Price Index rose more than forecast.
• The rate on similar maturity German bunds fell two basis points to 0.45 percent after earlier breaking above 0.5 percent.
• Other European government bonds also fell. The Netherlands was selling 2.275 billion euros in five-year bonds ahead of tomorrow’s parliamentary elections.

Commodities

• West Texas Intermediate dropped 1.4 percent to settle at $47.72 a barrel.
• Aluminum fell 1 percent to $1,862.50 a metric ton as China, the largest producer, increased output to a record.
• Gold futures for April delivery slipped less than 0.1 percent to settle at $1,202.60 an ounce in New York.

Source: Bloomberg