Global stocks slid to a six-week low and commodities fell as markets braced for the possibility that the Federal Reserve will raise interest rates as soon as next month. A gauge of the dollar’s strength stood at a seven-week high.
The MSCI All Country World Index declined for a third day after the minutes of the last Fed meeting showed most of its rate-setting officials were in favor of a move in June should the U.S. economy continue to improve. Treasuries erased losses to trade little changed after the biggest drop of the year. Currencies in Australia, China and South Korea sank to two-month lows against the dollar, while crude oil retreated and copper fell toward levels last seen in February. Gold and silver slipped to this month’s lows.
The Fed minutes jolted markets that had until Monday all but ruled out the prospect of U.S. rates being raised in June. Fed Funds futures show the odds of a move surged to 30 percent, after tripling to 12 percent on Tuesday as data on inflation, housing starts and industrial production beat forecasts. Markets reacted calmly when the Fed raised rates in December for the first time since 2006, reflecting investor conviction in the U.S. recovery’s ability to withstand tighter monetary policy.
“The markets were getting a little too complacent for the scope for rate hikes this year and next year but the Fed minutes were on the hawkish side so that made investors nervous,” said Allan von Mehren, chief analyst at Danske Bank A/S in Copenhagen. “We see some repricing on bond yields and it’s also having a negative spillover on equity markets.”
The MSCI All Country World Index fell 0.8 percent to its lowest level since April 8 at 9:39 a.m. in New York. The Bloomberg Dollar Spot Index rose 0.3 percent, after jumping 0.8 percent on Wednesday. A Labor Department report on Thursday showed filings for U.S. unemployment benefits declined last week from a more than one-year peak, although they still came in higher than economists had estimated. The Philadelphia Fed business-outlook survey missed forecasts.
The latest shift in Fed policy comes ahead of a meeting of the Group of Seven finance ministers, where Japan is likely to push further fiscal spending as the answer to tepid global economic growth.
The S&P 500 Index lost 0.4 percent to 2,040.32, headed for a seven-week low after equities closed Wednesday little changed.
Wal-Mart Stores Inc. surged after better-than-estimated first-quarter results assuaged some fears that the retail industry is mired in a slump. Cisco Systems Inc. rose after forecasting fourth-quarter sales and earnings that will top analysts’ estimates.
The Stoxx Europe 600 Index dropped 0.5 percent, with BHP Billiton Ltd. and Rio Tinto Group leading miners lower as commodities retreated. The European equity gauge has gone a month without posting a daily gain of at least 1 percent, and is down 4.1 percent from its April 20 peak.
Bayer AG tumbled 7.9 percent after Monsanto Co., the world’s largest seed maker, said it received an unsolicited takeover approach from the German company. Thomas Cook Group Plc tumbled 18 percent after warning that earnings this year will be at the lower end of analyst estimates as terrorism fears in Turkey and attacks in Belgium hurt business.
The MSCI Asia Pacific Index declined 1 percent, led by slides in raw-material producers and energy stocks. Tencent Holdings Ltd. posted its biggest drop in three months in Hong Kong after Asia’s biggest instant message company said uncertainty about China’s economy could cause near-term challenges for its advertising business.
The Japanese yen was little changed at 110.04 per dollar, following a 1 percent slide in the last session.
The pound gained 0.3 percent to 76.59 pence per euro, after touching the strongest level since Feb. 4 earlier and climbing 1.8 percent on Wednesday. The U.K. currency rose 0.3 percent to $1.4639, leaving it almost 2 percent higher this week.
It is no longer the worst-performing Group-of-10 currency of 2016, after surging this week as polls signaled a receding risk of a Brexit following the European Union referendum in June. Sterling cemented its lead over the Australian and New Zealand dollars on Thursday as better-than-forecast retail-sales data showed there’s still life in the U.K. economy.
Australia’s dollar weakened as much as 0.5 percent, and the MSCI Emerging Markets Currency Index fell 0.5 percent, taking its retreat in May to 3 percent. Indonesia’s rupiah and South Korea’s won led declines on Thursday, weakening at least 0.8 percent.
China’s yuan declined as much as 0.1 percent in Shanghai’s onshore market. It was more volatile in offshore trading, rebounding 0.3 percent after a 0.5 percent loss on Wednesday that marked its biggest decline since January.
Government bonds fell across all of the major economies in Asia and Europe. Yields on 10-year Treasuries rose one basis point to 1.86 percent, after surging eight basis points in the last session as the Bloomberg US Treasury Bond Index slid 0.7 percent.
The Fed is steering the market into line with its views, said John Gorman, head of U.S. debt trading for Asia and the Pacific at Nomura Holdings Inc. in Tokyo. “They did a very good job,” he said. “I’m still not sure they go in June. In my mind, I’m absolutely positive they go in September.”
German 10-year bund yields rose one basis point to 0.18 percent, having earlier reached 0.21 percent, their highest since May 5. The yield on similar-maturity U.K. gilts added three basis points to 1.47 percent, after rising seven basis points on Wednesday.
West Texas Intermediate crude dropped 2.3 percent to $47.07 a barrel, extending Wednesday’s retreat from a seven-month high. Data yesterday indicated U.S. crude stockpiles unexpectedly increased, keeping supplies at the highest level in more than eight decades.
Copper, nickel and zinc fell by at least 0.8 percent in London. Gold slid to a three-week low on concern the Fed is moving closer to raising interest rates. Metal for immediate delivery fell as much as 0.9 percent to $1,246.67 an ounce.