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Equity Markets Rebound Following Fed Minutes; Yields Tumble

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Equity Markets Rebound Following Fed Minutes; Yields Tumble

US stocks rebounded Wednesday as traders parsed minutes of the Federal Reserve's latest monetary policy meeting, while Treasury yields slid.

The Nasdaq Composite rose 1.5% to 26,270.4, while the S&P 500 advanced 1.1% to 7,433, both rising after a three-day fall. The Dow Jones Industrial Average added 1.3% to 50,009.4. Most sectors ended in the green, led by consumer discretionary, while energy saw the biggest drop.

Fed officials flagged the possibility of higher interest rates if the Middle East conflict drags on and keeps inflation above the 2% goal, minutes from the central bank's April meeting showed.

Meeting participants generally determined that elevated inflation, combined with uncertainty around the duration and impact of the Iran war, could justify holding rates for longer than previously anticipated, the meeting minutes showed.

However, majority of Fed officials pointed out "that some policy firming would likely become appropriate if inflation were to continue to run persistently above 2%."

"The discussion at the April meeting suggests the (Federal Open Market Committee) is becoming increasingly worried about the inflation outlook," Sal Guatieri, senior economist at BMO Capital Markets, said in a report. "While it is in no rush to raise rates, that possibility will only grow if inflation remains stubbornly high."

Treasury yields plunged in Wednesday late-afternoon trade, with the 10-year yield rate declining 9.6 basis points to 4.58% and the two-year rate retreating 7.4 basis points to 4.05%.

Bond yields have surged amid mounting concerns about inflation. Higher yields drove a sell-off in stocks on Tuesday, according to Macquarie.

"The state of play now and following the end of earnings season, is that stock indexes are likely to remain sensitive to what happens to long-term yields," Macquarie said in note Wednesday. "Should yields go higher (for whatever reason), stocks will slip further."

West Texas Intermediate crude oil was last down 5.5% at $98.47 a barrel, while Brent fell 5.6% to $105.03.

US President Donald Trump said on Wednesday that negotiations with Iran had reached the final stages, though he warned of further attacks if Tehran backs out, according to a Reuters report.

Shares of airlines and cruise operators were notable gainers on Wednesday, with United Airlines (UAL) up 10%, the top gainer on S&P 500. Delta Air Lines (DAL) jumped 9.4%, among the best performers on the index, along with Carnival (CCL) and Norwegian Cruise Line (NCLH).

In other company news, Hasbro (HAS) reported a first-quarter operating loss for the consumer products division even as the toymaker delivered stronger-than-expected results at the consolidated level. The stock slid 8.8%, the worst performer on the S&P 500.

Target (TGT) shares fell 3.9%, among the steepest declines on the S&P 500. The retailer lifted its full-year sales growth outlook as it recorded higher-than-expected fiscal first-quarter results.

TJX (TJX) raised its full-year outlook after posting stronger-than-expected fiscal first-quarter results, with comparable sales rising across all segments. The stock climbed 5.6%.

Gold was last up 0.8% at $4,549.30 per troy ounce, while silver rose 1.8% to $76.48 per ounce.

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Fed Officials Flag Rate Hike Possibility if Inflationary Pressures Persist, FOMC Minutes Show
US Markets

Fed Officials Flag Rate Hike Possibility if Inflationary Pressures Persist, FOMC Minutes Show

Federal Reserve officials flagged the possibility of higher interest rates if the Middle East conflict drags on and keeps inflation above the 2% goal, minutes from the central bank's April meeting showed Wednesday.At that meeting, the Federal Open Market Committee decided to keep its policy rate unchanged between 3.50% and 3.75% for a third straight time amid uncertainty around the US economic outlook.A fragile ceasefire between the US and Iran appears to be holding, though the two sides are yet to finalize a framework to end the conflict despite a series of talks.Meeting participants generally determined that elevated inflation, combined with uncertainty around the duration and impact of the Iran war, could justify holding rates for longer than previously anticipated, the meeting minutes showed.However, majority of Fed officials pointed out "that some policy firming would likely become appropriate if inflation were to continue to run persistently above 2%.""Many participants indicated that they would have preferred removing the language from the post-meeting statement that suggested an easing bias regarding the likely direction of the committee's future interest rate decisions," according to the document.Three regional presidents supported the April policy decision, but opposed including an easing bias in the statement. Fed Governor Stephen Miran, whose resignation will take effect the moment Kevin Warsh is sworn in as Fed chair, favored an interest rate reduction.Several participants were of the view that the Fed's next move could be a rate cut, assuming inflation begins to cool or the labor market weakens significantly, the meeting minutes showed."Participants assessed that both upside risks to inflation and downside risks to employment remained elevated," according to the minutes. "Participants generally observed that the conflict in the Middle East could have significant implications for the balance of these risks and for the appropriate path of monetary policy."Official data showed earlier this month that US annual consumer inflation accelerated in April to the fastest pace in almost three years, while the economy added more jobs than projected. Energy prices have surged amid the near-complete closure of the Strait of Hormuz."The discussion at the April meeting suggests the FOMC is becoming increasingly worried about the inflation outlook," Sal Guatieri, senior economist at BMO Capital Markets, said in a report. "While it is in no rush to raise rates, that possibility will only grow if inflation remains stubbornly high ... regardless of the previous views of the incoming chair."Markets widely expect the FOMC to keep interest rates unchanged at its next policy meeting in June, according to the CME FedWatch tool.

Mortgage Applications Reach Lowest in 5 Weeks as Inflation, Public Debt Concerns Push Rates Higher, MBA Says
US Markets

Mortgage Applications Reach Lowest in 5 Weeks as Inflation, Public Debt Concerns Push Rates Higher, MBA Says

Mortgage applications in the US reached the lowest level in five weeks as rates rose amid concerns over inflation and global public debt, the Mortgage Bankers Association said Wednesday.The market composite index, which measures loan application volume, fell 2.3% for the week through Friday on a seasonally adjusted basis. Without adjustment, the index decreased 3%."Ongoing concerns around inflation from higher fuel costs, combined with rising concerns over global public debt, pushed Treasury yields higher in the US and abroad last week," said Joel Kan, the MBA's deputy chief economist. "Overall applications were down to the lowest level in five weeks as purchase borrowers pulled back across conventional and government loan types."The average fixed rate for 30-year mortgages with conforming loan balances of $832,750 or less increased to 6.56% from 6.46% a week ago, reaching its highest level in seven weeks, according to Kan.For loan balances higher than that amount, the rate rose to 6.58% from 6.48%. For 15-year loans, the rate increased to 5.93% from 5.83%, MBA data showed.Fixed-rate mortgages with 30-year terms backed by the Federal Housing Administration increased to 6.24% from 6.16%. The share of FHA loans, which are often used by first-time home buyers and can involve smaller down payments, was unchanged at 17.9% of total applications.The seasonally adjusted purchase index dropped 4% on a weekly basis, while the refinance index eased 0.1%, according to the report."Refinance applications were essentially unchanged, with a decline in government refinances and an increase in conventional refinancing, likely as the increase in rates came late in the week," Kan said.

Equities Higher Ahead of Fed Minutes, Nvidia Earnings
US Markets

Equities Higher Ahead of Fed Minutes, Nvidia Earnings

US benchmark equity indexes were higher intraday as traders awaited minutes of the Federal Reserve's last policy meeting and tech bellwether Nvidia's (NVDA) results.The Nasdaq Composite was up 1.2% at 26,185.8 after midday Wednesday, while the Dow Jones Industrial Average advanced 1.1% to 49,894.5. The S&P 500 rose 0.9% to 7,417.3. Among sectors, consumer discretionary paced the gainers, while energy saw the biggest drop.The Federal Open Market Committee is scheduled to publish minutes of its most recent policy meeting at 2 pm. Last month, the central bank held interest rates steady, saying the Middle East conflict is fueling uncertainty around the US economic outlook.Three FOMC officials opposed including an easing bias in the April monetary policy statement."The minutes will no doubt offer further insight into the conversation and discussion around the latest statement language, which led to a plethora of dissents, as well as the committee's assessment of current conditions amid the ongoing international conflict and the outlook for policy and rates in the coming months," Stifel said in a note.Shares of Nvidia were up 1.8% intraday, with the chipmaker scheduled to report its fiscal first-quarter results after the closing bell.Nvidia's sales are expected to outperform market projections, BofA Securities said in a note e-mailed Tuesday."Markets are still supported by (artificial intelligence) expectations, but higher yields are putting pressure on expensive growth stocks, making Nvidia's earnings later today one of the week's most important catalysts for the broader technology sector," Saxo Bank said in a report Wednesday.Bond yields have surged amid mounting concerns about inflation. Higher yields drove a sell-off in stocks on Tuesday, according to Macquarie.Treasury yields were down intraday Wednesday, with the 10-year yield rate declining 7.9 basis points to 4.59% and the the two-year rate retreating 5.7 basis points to 4.07%."The state of play now and following the end of earnings season, is that stock indexes are likely to remain sensitive to what happens to long-term yields," Macquarie said in note Wednesday. "Should yields go higher (for whatever reason), stocks will slip further."West Texas Intermediate crude oil declined 6.1% to $97.80 a barrel intraday, while Brent fell 6% to $104.60.US President Donald Trump said on Wednesday that negotiations with Iran had reached the final stages, though he warned of further attacks if Tehran backs out, according to a Reuters report."Either have a deal or we're going to do some things that are a little bit nasty, but hopefully that won't happen," Trump was quoted as saying in the report.In other company news, Hasbro (HAS) reported a first-quarter operating loss for the consumer products division even as the toymaker delivered stronger-than-expected results at the consolidated level. The stock was down 8.3% intraday, the worst performer on the S&P 500.Target (TGT) shares fell 3.8%, among the steepest declines on the S&P 500. The retailer lifted its full-year sales growth outlook as it recorded higher-than-expected fiscal first-quarter results.TJX (TJX) raised its full-year outlook after posting stronger-than-expected fiscal first-quarter results, with comparable sales rising across all segments. The stock was advancing by 6.2%.Gold was up 0.6% at $4,536.50 per troy ounce, while silver rose 1.4% to $76.24 per ounce.

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