The Thursday Market Minute
- Global stocks slide following a grim second-half assessment of the U.S. recovery from the Federal Reserve.
- Minutes of the Fed's July interest rate meeting suggest further support in the months ahead, but a possible switch in focus to inflation targeting and direct bond market intervention.
- The U.S. dollar spikes higher on inflation targeting hint, while bond yields rise as investors pare Treasury holdings.
- Oil prices slide after EIA data shows a smaller-than-expected crude drawdown, and estimates a 14% year-on-year slump in U.S. energy demand.
- Apple shares edge higher in pre-market trading after the tech giant's market cap briefly topped the $2 trillion market in Wednesday trading.
- U.S. equity futures suggest softer open on Wall Street after weekly jobless claims rose past 1.1 million over the week ending August 14.
Wall Street futures traded lower Thursday, while the dollar extended its rebound from two-year lows, as investors re-set growth expectations in the wake of a grim assessment on the U.S. economic recovery from the Federal Reserve.
Stocks were further weakened by data from the Commerce Department showing 1.1 million Americans filed for unemployment benefits last week, up from 963,000 over the previous period and well ahead of the 925,000 consensus.
Fed officials, who have for months now placed the coronavirus pandemic at the center of their monetary policy strategy, were uniformly concerned that gains made in consumer and employment markets over the late spring and summer would fade heading into the second half of the year, according to minutes of their July policy meeting, which were published late Wednesday.
The Fed Governors also hinted at more stimulus in the months ahead, but hinted at a preference for waiting for U.S. lawmakers to agree on another coronavirus relief bill, perhaps in September, before acting.
"Noting the increase in uncertainty about the economic outlook over the inter-meeting period, several participants suggested that additional accommodation could be required to promote economic recovery and return inflation to the Committee’s 2% objective," the minutes said.
The gloomy outlook, along with a suggestion that the Fed's policy strategy could shift towards a more flexible inflation target, pushed U.S. equity futures lower in overnight trading as stock markets around the world traded firmly in the red.
Ongoing coronavirus flare-ups in major economies, such as Germany and South Korea, added to the bearish sentiment, as did figures showing global infections rising to 22.3 million and U.S. cases holding at a daily rate of around 50,000.
Futures contracts tied to the Dow Jones Industrial Average suggest the benchmark will extend its three-day losing streak with a 130 point opening bell decline while those linked to the S&P 500 are priced for a 14 point pullback.
The U.S. dollar index extended its overnight gains against a basket of six global currencies to trade a 93.138, a full 1.1% higher than the two-year low of 92.12 the index traded earlier this week. Part of the gains were linked to the Fed's hint at a flexible inflation target, which could see a rate of more than 2% once a broader recovery takes hold in order to compensate for years of under-shooting.
A similar dynamic was in place in the bond market, where the suggestion of yield curve control, or direct intervention on a daily basis by the Fed, triggered a mini-exodus from the Treasury market, pushing benchmark yields modestly higher across the board.
European stocks were mostly caught in the broader equity market downdraft, with the Stoxx 600 falling 0.7% in the early hours of trading in Frankfurt, while Britain's FTSE 100 slumped 1% in London as the pound held its ground against a surging U.S. dollar.
The dollar strength was also a factor in sliding commodity prices, which were weaker from the start of the session following the Fed's bearish outlook and data from the U.S. Energy Department that estimated domestic fuel demand was some 14% lower than the same period last year.
WTI contracts for October delivery, the new U.S. benchmark, traded 42 cents lower from their Tuesday close in New York and were changing hands at $42.69 per barrel in early European dealing while Brent contracts for October, the global benchmark, were seen 49 cents lower at $44.88 per barrel.
Overnight in Asia, Japan's Nikkei 225 fell 1% on the session to close at 22,880.62 points as Wall Street's Wednesday sell-off hit stocks and currencies around the region, lifting the yen to 106.02 against the U.S. dollar.
The region-wide MSCI ex-Japan benchmark, meanwhile, slumped 1.65% heading into the final hours of trading, lead by a 3.8% decline for the South Korean Kospi and the third straight day of declines for the Shanghai Composite.