Treasury yields jump, dollar strengthens on Fed decision

Oil prices slip as production rises; gold steady

NEW YORK, June 13, Agencies): US Treasury yields jumped and the dollar pared earlier losses on Wednesday after the Federal Reserve raised interest rates and signalled that two more hikes could be coming this year.

Ten-year notes yielded a oneweek high, while two-year note yields rose to a three-week peak after the Fed’s decision to raise its benchmark overnight lending rate a quarter of a percentage point, to a range between 1.75 percent and 2 percent.

Policymakers also projected a slightly faster pace of rate increases in the coming months, with two additional hikes expected by the end of this year, compared to one previously.

“The labour market has continued to strengthen ... economic activity has been rising at a solid rate,” the Fed’s rate-setting committee said in unanimous statement after the end of a twoday meeting.

Benchmark 10-year U.S. Treasury notes last fell 9/32 in price to yield 2.9903 percent, from 2.957 percent late on Tuesday.

The 30-year bond last fell 11/32 in price to yield 3.1096 percent, from 3.092 percent Tuesday.

The dollar index, which measures the greenback against a basket of currencies, rose 0.09 percent, with the euro up 0.06 percent to $1.175.

“There was some question about the December rate hike and it looks like the Fed is sticking to that plan and I would say this is a very mild negative for risk markets,” said Matthew Forester, chief investment officer at Lockwood Advisors Inc in King of Prussia, Pennsylvania.

“Each rate hike becomes more difficult for the risk markets and the real economy to digest.”

Investors also awaited policy meetings later this week at the European Central Bank and the Bank of Japan.

The Dow Jones Industrial Average fell 42.16 points, or 0.17 percent, to 25,278.57, the S&P 500 lost 5.77 points, or 0.21 percent, to 2,781.08 and the Nasdaq Composite dropped 3.98 points, or 0.05 percent, to 7,699.82.

Wall Street had opened slightly in the black after a court approved AT&T’s $85-billion takeover of Time Warner , but reversed those gains in afternoon trading.

Time Warner shares jumped about 2.3 percent after approval of the AT&T deal, which is expected to trigger other corporate takeovers. AT&T dropped roughly 2 percent, sending the S&P telecom services index down more than 4 percent, its biggest single-day fall in nearly four months..

The pan-European FTSEurofirst 300 index rose 0.09 percent and MSCI’s gauge of stocks across the globe shed 0.28 percent.

Emerging market stocks lost 0.76 percent.

Trade tensions were pressuring the Mexican peso and Canadian dollar, which pared earlier gains to lose 0.36 percent and 0.2 percent, respectively, versus the greenback.

Oil prices, which had started the day in the red, settled higher after a report by the Energy Information Administration indicated U.S. crude inventories fell more than anticipated last week and while gasoline and distillate stocks surprised with unexpected declines.

U.S. crude settled up 0.42 percent, at $66.64 per barrel, while Brent gained 1.13 percent on the day, settling at $76.74.

“The demand metrics here are amazing for crude oil and gasoline,” said John Kilduff, a partner at Again Capital in New York. “Put the exports of crude on top of that, and it’s just a really bullish report.”

Italian government bonds were in demand, as well, after Paolo Savona, the country’s new EU Affairs Minister, said the euro was “indispensable.”

The comments by Savona, who has previously expressed hostile views on the euro, followed statements earlier in the week by Italy’s new coalition government that it had no plans to leave the euro zone.

US

US stocks were little changed on Wednesday, ahead of a widely expected interest rate hike by the Federal Reserve, with focus on its guidance on the economy and monetary policy.

The two-year Treasury yield, which is sensitive to Fed interest rate hikes, was last up at 2.54 percent.

At 12:42 pm ET, the Dow Jones Industrial Average was up 2.99 points, or 0.01 percent, at 25,323.72, the S&P 500 was up 1.30 points, or 0.05 percent, at 2,788.15 and the Nasdaq Composite was up 26.58 points, or 0.34 percent, at 7,730.37.

A landmark ruling that approved AT&T’s $85 billion deal to buy Time Warner put the spotlight on media and telecom shares.

Shares of HBO channel owner Time Warner rose 3.1 percent. AT&T dropped 4.7 percent, sending the S&P telecom services index down 3.6 percent to its biggest single-day fall in nearly four months.

Twenty-First Century Fox surged 7.4 percent as Comcast Corp is expected to outbid Walt Disney for some of its assets. Disney rose 3 percent

Netflix jumped 4.1 percent after Goldman Sachs raised it price target on the stock and forecast that 2018 would be the peak negative-free cash flow year for the company.

Stryker rose 2.5 percent after the medical device maker said it was not in talks to buy rival Boston Scientific , days after a media report on a potential deal between the two companies.

UK

The FTSE 100 ended flat on Wednesday as a weaker pound supported export-oriented shares, helping offset a fall in Just Eat on fresh competition worries and weaker energy stocks.

The index fluctuated within a tight range as investors waited for a string of central bank decisions this week, starting with the US Federal Reserve later in the day.

Just Eat fell 4.7 percent, leading fallers on the FTSE, after Deliveroo stepped up competition against its rival, saying it would allow restaurants to use their own riders for orders placed through its app.

Domino’s Pizza was also lower, down 2.7 percent.

The energy sector had the biggest negative pull, taking 12 points off the FTSE.

Oil majors Royal Dutch Shell and BP fell 1.1 and 0.9 percent respectively but ended off their day’s low as oil prices turned higher after US government data showed a bigger weekly draw than expected on domestic crude inventories.

Heavyweight miner Glencore rose 3.7 percent after its Congo unit reach a settlement to dissolve a copper and cobalt joint venture.

Europe

Trading in European shares was hesitant on Wednesday as investors awaited guidance from the Federal Reserve on future US interest rate rises, while Inditex rose after results and Just Eat was bruised by intensifying competition.

Benchmarks barely budged, with all the action at the stock level. The panEuropean STOXX 600 ended up 0.2 percent while Germany’s DAX added 0.4 percent and Britain’s FTSE 100 ended flat.

Just Eat fell 4.7 percent as investors priced in heightened competition after rival Deliveroo said it would let restaurants use their own riders for orders placed through its app.

Inditex rose 3.5 percent after the world’s biggest clothing retailer reported improved first-quarter profitability despite the dampening impact of a strong euro.

Shares in the owner of fashion brand Zara had opened lower on profit taking and concerns around the quality of its results but later recovered with traders citing strong sales of its summer collections.

Tech stocks were the best-performing, up 1.7 percent after shares in Dutch fintech firm Adyen rocketed up 90 percent in its first day of trading following an initial public offering.

Asia

On equity markets Tokyo’s Nikkei ended the day with gains of 0.4 percent as exporters were lifted by the weaker yen.

But Hong Kong dropped 1.2 percent with Chinese telecoms equipment maker ZTE collapsing more than 40 percent as it resumed trading after agreeing to pay a massive fine over its handling of a US sanctions violation.

The firm suspended trading in April after Washington said it had banned American companies from selling crucial hardware and software components to it for seven years.

However, that was reduced to a $1 billion penalty, plus another $400 million in escrow to cover possible future violations, after a deal was hammered out between the US and China.

On other markets Shanghai fell one percent, Sydney dropped 0.5 percent and Singapore was one percent lower. There were also losses in Manila and Bangkok, though Wellington and Taipei rose slightly.

Key figures Tokyo — Nikkei 225: Up 0.4 percent at 22,966.38 (close)

Hong Kong — Hang Seng: Down 1.2 percent at 30,725.15 (close)

Shanghai — Composite: Down 1.0 percent at 3,049.80 (close)

Oil

Oil prices slipped on Wednesday, hit by rising supplies in the United States and expectations that producers could relax voluntary output cuts.

Brent crude was down 20 cents at $75.68 a barrel by 1330 GMT. US light crude was 35 cents lower at $66.01.

The Organization of the Petroleum Exporting Countries and some nonOPEC producers, including Russia, started pumping less in 2017 to reduce a supply overhang, and prices have risen by around 60 percent over the last year.

OPEC and other producers will meet on June 22-23 in Vienna to discuss future production.

Lukman Otunuga, analyst at brokerage FXTM, said higher oil production and forecasts of more to come were already undermining prices.

Gold

Gold was stuck just below $1,300 an ounce on Wednesday ahead of a US Federal Reserve policy announcement that could trigger a sharp move in prices.

Investors expect the Fed to raise interest rates but want to know if it intends to tighten policy four times in 2018 or three times, as it indicated earlier this year.

Spot gold was flat at $1,295.86 an ounce at 1339 GMT and US gold futures for August delivery were also almost unchanged at $1,299.80.