Shares choppy, U.S. yields fall as investors digest Fed minutes

Markets have been volatile amid concerns about a looming recession, even though Fed officials indicated in the minutes of their July meeting released on Wednesday that they would adopt a less aggressive stance if inflation starts to recede.

“The markets are still trying to figure out the Fed minutes,” causing volatility, said Charles Self, chief investment strategist at Tandem Wealth Advisors in Appleton, Wisconsin.

“The minutes were uniformly hawkish in our view,” Self added. “It‘s clear that among all the voting members that curing inflation is the No. 1 choice and they’re going to do whatever is necessary as far as raising rates to get there. We think theyre using the labor market as cover.”

MSCIs gauge of stocks in 50 countries across the globe rebounded from earlier losses and was up 0.05%. The pan-European STOXX 600 index closed higher at 0.39%.

U.S. Treasury yields edged lower as investors continued to digest the Fed meeting minutes. A string of Fed officials, including St. Louis Fed President James Bullard and San Francisco Fed President Mary Daly, reiterated on Thursday that the U.S. central bank needs to keep raising interest rates to rein in inflation.

Benchmark 10-year notes were down to 2.8859%, from 2.895% on Wednesday. Two-year notes retreated to 3.2057%, from 3.295%.

The yield curve between two- and 10-year Treasury notes, widely viewed as an indicator of impending recession, remained inverted at minus 38 basis points on Thursday.

“Since the Fed‘s July 27 meeting, the two-year yields have been up 43 basis points, meaning that the bond market thinks they’re going to raise rates higher for a longer period of time, whereas the stock market has been up 5%, meaning the market thinks theyll raise rates relatively quickly and maybe even decrease rates next year,” Self added.

“Well, I think the bond market is usually right.”

Major indexes

On Wall Street, major indexes reversed early session losses and ended higher, driven partly by upbeat sales forecast from networking giant Cisco Systems that helped to lift the technology sector. Equities in industrials and energy sectors were also among the top gainers.

The Dow Jones Industrial Average rose 0.06% to 33,999.04, the S&P 500 gained 0.23% to 4,283.74 and the Nasdaq Composite added 0.21% to 12,965.34.

Oil prices gained nearly 3% as robust U.S. fuel consumption data and an expected drop in Russian supply later in the year offset concerns that slowing economic growth could undercut demand.

Brent futures rose 3.09% to settle at $96.59 a barrel, while U.S. West Texas Intermediate (WTI) crude rose 2.7% to $90.50.

The U.S. dollar index surged to a one-month high after the comments from the Fed officials reaffirming the need for further rate hikes.

The dollar index rose 0.797%, with the euro up 0.01% to $1.0089.

Gold reversed earlier gains and was lower on a firmer dollar, as investors looked for more economic cues that could influence rate hikes. Spot gold dropped 0.2% to $1,758.20 an ounce, while U.S. gold futures fell 0.28% to $1,755.40 an ounce.