Weekly Market Outlook

U.S. Stocks Decline With Treasuries After Dudley’s Rate Comments

U.S. stocks fell from records, Treasuries erased gains and the dollar pared its decline amid hawkish comments from a Federal Reserve official.

The S&P 500 Index pared this year’s rally, while the U.S. currency trimmed a drop of as much as 1.2 percent after New York Fed President William Dudley said policy makers could potentially raise interest rates as soon as next month. Yields on two-year U.S. notes, the coupon maturity most sensitive to Fed policy expectations, were set for the highest level in three weeks. Crude traded near $46 a barrel.

The dollar has lost ground over the past month as lackluster data in the world’s biggest economies fueled speculation the Fed would be slow to raise borrowing costs. While traders now see a 51 percent chance of a rate hike by the end of this year, the odds of that happening next month are only 22 percent, according to federal funds futures contracts. Dudley said such estimates are too low and that “the market is complacent” about the need for rate hikes. With Treasury yields low, the bond market “looks a little bit stretched,” he said.

“The unevenness seen over the last couple of weeks in U.S. data has diminished the relative appeal of pursuing dollar strength,” said Ned Rumpeltin, the European head of foreign-exchange strategy at Toronto Dominion Bank in London. Minutes of the last Fed meeting due this week “will be an important platform to signal whether they hope to keep the potential for a 2016 rate hike on their agenda.”

U.S. home construction unexpectedly accelerated in July to the fastest pace in five months, indicating the housing industry remains an area of support for the economy. Factory production grew at the fastest pace in a year, data from the Federal Reserve showed Tuesday in Washington. Meanwhile, the cost of living was little changed in July, a sign subdued inflationary pressures would give policy makers reason to keep interest rates low.


Bloomberg’s dollar index fell 0.7 percent as of 10:14 a.m. in New York. The yen appreciated 1.2 percent to 100.10 versus the greenback.

The MSCI Emerging Markets Currency Index rallied to the highest since June 25.

The pound rose 0.9 percent to $1.2994, after a Monday close of $1.2880 that was the weakest since June 1985.

Mongolia’s tugrik, the world’s worst-performing currency in August, weakened a 22nd day to 2,243.50 per dollar, the lowest level in Bloomberg data going back to 1993. The currency is suffering as the the nation’s government seeks ways to stabilize an economy it says is in the grip of a crisis.

CommoditiesOil traded near $46 a barrel after the biggest three-day gain since April as Nigeria’s oil minister signaled the prospect of production cuts from OPEC was unlikely.

Gold rallied for a second day as falling equities lifted demand for a haven and the outlook for supportive monetary easing made non-yielding assets more attractive. Nickel dropped 1.6 percent after posting the biggest advance in more than two weeks on Monday.


The S&P 500 fell 0.4 percent, led by technology and utility shares.

As the earnings season winds down, investors will look to results this week from companies including Wal-Mart Stores Inc. and Target Corp. for signs of the health of corporate America and the U.S. consumer. Home Depot Inc. todayposted results in line with estimates. About 78 percent of S&P 500 members that have reported beat profit predictions and 56 percent topped sales projections. Analysts’ estimates for second-quarter net income have improved to a 2.5 percent decline, from a 5.8 percent drop a month ago.

The MSCI Emerging Markets Index rose less than 0.1 percent, heading for the highest close since July 2015. Developing-nation shares have soared about 33 percent from a January low, driving valuations to the highest level in 15 months.

Qatar stocks climbed after FTSE Russell said it would relax the criteria to decide which of the nation’s shares will join its emerging-markets index next month. The QE Index advanced 2.2 percent, its biggest gain since June 7 and the most among more than 90 gauges tracked globally by Bloomberg.

The long-planned stock-trading link between Hong Kong and the mainland city of Shenzhen has been approved, further opening China’s $6.5 trillion equity market to international investors. Chinese Premier Li Keqiang announced the Council’s approval, according to a statement on the body’s website. No further details were revealed.

The Stoxx Europe 600 Index slipped 0.5 percent. A stronger euro hurts European stocks by making exports less competitive. Schindler Holding AG led industrial-goods companies lower, after forecasting a decline in the global elevator and escalator market. Electrolux AB, which gets more than a third of its revenue from North America, slipped after a report showed U.S. shipments of major home appliances fell in July.


The yield on Treasuries due in a decade rose one basis point to 1.57 percent.

The U.K.’s 10-year gilt yield was little changed at 0.54 percent before the Bank of England seeks to buy 1.17 billion pounds ($1.5 billion) of debt due in more than 15 years as part of its expanded quantitative-easing program. The central bank fell short of achieving a similar target at last week’s bond-buying auction, spurring gains in longer-dated gilts.