Dollar rises with US stocks little changed before Fed minutes

BLOOMBERG

Financial markets reawakened to the risk of the Federal Reserve expediting interest-rate increases, buoying the dollar while crimping emerging markets and commodities. U.S. stocks were little changed after slumping on Tuesday.
The dollar climbed to a seven-week high and Treasuries fell, pushing two-year yields to highest since April, before Wednesday’s release of minutes from the Federal Open Market Committee’s meeting last month. Utility and consumer-staple companies led declines in the S&P 500, as financial companies helped offset losses. Copper and gold fell for the first time in four days.
The dollar has rebounded in May after declining in the previous three months as the Fed pushed back expectations for rate increases this year. A strengthening U.S. economy and the biggest jump in consumer prices in three years have led traders to boost the odds of a move in June threefold to 16 percent. The first month with even odds of higher borrowing costs also moved up to November from December. Minutes from the Fed’s April meeting today will be in focus after hawkish comments from regional presidents yesterday.
“Expectations appear to be that minutes will signal that a summer hike is on the cards,” said Stuart Bennett, head of Group-of-10 currency strategy at Banco Santander SA in London. The “solidly hawkish” rhetoric from Fed non-voting members of late is proving to be dollar positive, as the possibility of a hike is not priced in by markets, he said.

Currencies
The Bloomberg Dollar Spot Index advanced 0.4 percent at 9:58 a.m in New York. The yen slipped 0.4 percent to 109.53 per dollar, while the euro weakened 0.4 percent to $1.1264.
The pound jumped to a two-week high against the euro and reversed its drop against the dollar after a poll showed the campaign to keep Britain inside the European Union extended its lead. Sterling rose 0.9 percent to $1.4592 after dropping as much as 0.4 percent. The survey by the Evening Standard newspaper and Ipsos Mori put the “Remain” camp’s lead at 18 percentage points.
The MSCI Emerging Markets Currency Index fell 0.7 percent with Brazil’s real, Russia’s ruble and Poland’s zloty all losing at least 0.9 percent versus the dollar.
The rand led losses, tumbling 2 percent to the weakest since March. South African Finance Minister Pravin Gordhan said rumors and accusations that he was involved with espionage are false and “malicious.” The Sunday Times newspaper has reported, citing people it didn’t identify, that Gordhan is at risk of being charged with espionage and fired.

Stocks
The S&P 500 slipped 0.1 percent. Target Corp. plunged 9.4 percent after first-quarter sales missed analysts’ estimates and the discount chain delivered a disappointing forecast. Lowe’s Cos. rose 2 percent after posting first-quarter profit that topped analysts’ projections and raising its forecast for the year.
The Stoxx Europe 600 Index added 0.4 percent after swinging between gains and losses. Burberry Group Plc dropped 2.2 percent after the luxury-goods retailer added to the industry’s gloom by posting a second straight drop in annual earnings.
The MSCI Asia Pacific Index lost 0.9 percent, led by declines in consumer-goods producers. Suzuki Motor Corp. plunged 9.4 percent in Tokyo after saying it used an improper method to test the fuel efficiency of its vehicles.
Chinese stock led declines in emerging markets, with the Hang Seng China Enterprises Index of mainland companies listed in Hong Kong losing 1.5 percent.

Commodities
Copper fell along with other metals amid rising supplies and an uncertain demand outlook in China, the world’s top consumer. Antofagasta Plc, a Chilean copper producer, said it isn’t counting on an improving global economy and expects low copper prices for another year or two, according to a statement from Chairman Jean-Paul Luksic.
Copper for delivery in three months slid 0.9 percent. Gold for immediate delivery lost 0.5 percent.
Oil was little changed at $48.53 a barrel in New York after closing on Tuesday at the highest since Oct. 9. A government report will probably show that U.S. crude supplies fell by 3.5 million barrels last week after rising to the highest level since 1929 in April.Wildfires in Canada have shifted back toward oil-sands operations, forcing Suncor Energy Inc. to evacuate three sites it was restarting.

Bonds
The yield on U.S. two-year Treasuries climbed to 0.85 percent, the highest since April 27. The 10-year yield increased four basis points to 1.81 percent. That compares with a one-month low of 1.70 percent at the end of last week.
Jan Hatzius, the chief economist at Goldman Sachs Group Inc., warned that bond investors aren’t prepared for the Fed to raise interest rates despite officials having flagged the possibility of such a move.
“The market’s underestimating their willingness to follow through on what they say,” Hatzius said in an interview on Bloomberg Television. “If you look at where the yield curve is priced — how little normalization of monetary policy is discounted — that’s very striking.”