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U.S. stocks traded close to record highs and Treasuries rallied, while the dollar weakened by the most since March after the Federal Reserve struck a dovish tone in its latest policy statement.
The S&P 500 pushed within striking distance of an all-time high before paring gains. The two-year note yield slipped to as low as 1.77% after the central bank kept rates steady and signaled a readiness to cut interest rates for the first time in more than a decade. Moves were somewhat muted after markets had been pricing in such a turn for the past few weeks. Crude oil fluctuated.
“We’re definitely hearing a decidedly more dovish Fed,” said Mike Loewengart, vice president of investment strategy at E*TRADE Financial. “While you could point the finger at pressure from the White House, it’s key to remember that the Fed’s focus has always been on two things and two things only: Jobs and inflation.”
Chairman Jerome Powell and colleagues dropped a reference in their statement to being “patient” on borrowing costs and forecast a larger miss of their 2% inflation target this year. Policy makers kept their key rate in a range of 2.25% to 2.5%.
As many of the world’s biggest central banks signal a shift to easier policy, traders are weighing that against trade war fears and signs of cooling global growth. U.S. President Donald Trump said Tuesday that he had a “very good” phone conversation with Chinese President Xi Jinping. The two leaders will hold an “extended meeting” at the G-20 summit on June 28-29 in Osaka.
“Members of the Fed handed the markets what they were looking for by now predicting rate cuts,” said Bryce Doty, senior vice president at Sit Investment Associates. “I can’t help feeling that many will see that a precedent has been set: Higher trade tariffs bring rate cuts.”
These are the main moves in markets:
Stocks
- The S&P 500 Index rose 0.2% as of 2:48 p.m. New York time, while the Nasdaq Composite Index gained 0.1% and the Dow Jones Industrial Average increased less than 0.2%.
- The Stoxx Europe 600 was little changed.
- The MSCI Emerging Market Index climbed 1.6%, the biggest increase in more than a week.
- The MSCI Asia Pacific Index surged 2%, the highest in six weeks on the largest jump in more than five months.
Currencies
- The Bloomberg Dollar Spot Index declined as much as 0.4%, the most on an intraday basis since March 20.
- The euro rose 0.2% to $1.1206, while the yen weakened less than 0.1% at 108.35 per dollar.
- The British pound rose 0.6% to $1.2632, the biggest rise in more than a week.
- The MSCI Emerging Markets Currency Index rose 0.5%.
Bonds
- The yield on 10-year Treasuries fell 2 basis points to 2.04%.
- Germany’s 10-year yield climbed 3 basis points to -0.29%.
Commodities
- West Texas Intermediate fell 0.6% to $53.57 a barrel.Gold rose 0.3% to $1,350 an ounce.
- The Bloomberg Commodity Index dropped 0.5%.