Minutes highlight a Fed split over labor market, bond-buying taper
Federal Reserve officials felt their employment benchmark for decreasing support for the economy “could be reached this year,” but appeared to disagree on other key aspects of where monetary policy should turn next in the transition from the pandemic crisis, according to minutes from last month’s policy meeting.
The account of the July 27-28 meeting showed Fed officials largely expect that later this year they will reduce the central bank’s emergency monthly purchases of $120 billion of Treasury bonds and mortgage-backed securities.
But consensus on other key issues appeared elusive, including the start date and pace of the bond-buying “taper,” and whether the bigger risk to the recovery is posed by inflation, ongoing joblessness, or the lurking chance that a resurgent coronavirus may throw things into reverse.
As policymakers weighed recent spikes in prices against the value of being “patient” with monetary policy so more hiring could take place, they also noted “the risks that rising COVID-19 cases associated with the spread of the Delta variant could cause delays in returning to work and school, and so damp the economic recovery”.
Stocks closed sharply lower in choppy trading, with the S&P 500 (.SPX) index down more than 1%. U.S. Treasury yields fell, with the benchmark 10-year note hovering around 1.26% after rising to a session high of 1.30% before the release of the minutes. The dollar (.DXY) was largely flat.
Debate at the July policy meeting was complicated further by what amounts to the initial discussions of a longer-term decision – when to raise the Fed’s overnight benchmark interest rate from the current near-zero level.
Full coverage: REUTERS
Baidu raises $1 bln in ESG bond issue despite China tech sector woes
Chinese internet giant Baidu Inc (9888.HK) has raised $1 billion in a two-tranche, U.S. dollar sustainability bond, its first environment, social and governance (ESG) transaction.
A 5.5-year tranche bond raised $300 million and the 10-year tranche secured $700 million, a company statement said.
The shorter dated bond was priced at US Treasuries plus 83 basis points, while the longer dated issuance was at US Treasuries plus 113 basis points.
The final price was significantly cheaper for Baidu than when first flagged to investors on Wednesday.
Full Coverage: REUTERS
WORLDWIDE: FINANCE / MARKETS
Asian shares fall, dollar gains after Fed minutes
Asian shares fell on Thursday while the dollar reached multi-month highs against peers, after minutes from the U.S. central bank’s last meeting showed the increasing prospect of reduced monetary stimulus this year.
MSCI’s broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) dropped 0.63%, heading back towards 2021 lows set last month, with Chinese blue chips (.CSI300) down 0.21%, Australia (.AXJO) falling 0.54% and Hong Kong off 0.45%.
Japan’s Nikkei (.N225) dropped 0.37%.
Carlos Casanova, senior Asia economist at UBP, said the main drivers for markets this week were weaker economic activity data in China, which had prompted many economists to downgrade forecasts, the situation in Afghanistan and the Fed minutes.
The minutes from the July policy meeting published Wednesday fleshed out the Fed’s thinking on when to taper its monthly bond purchases, and showed officials expected they could ease stimulus this year if the economy continues to improve.
However, officials noted the spread of the COVID-19 Delta variant could temporarily delay the full reopening of the economy and restrain a jobs market that looms large in the Fed’s thinking.
“The minutes show a Fed that is pretty split on most things, but recognises that we are getting much closer to the point of tapering,” wrote ING analysts in a note.
Focus now shifts to the Fed’s annual research conference in Jackson Hole, Wyoming, next week for any read about the central bank’s next steps.
Full coverage: REUTERS
Oil extends losses on pandemic fears and rises in US gasoline stockpiles
Crude prices extended their losses into a sixth day on Thursday, hovering near 3-month lows, hurt by growing fears over slower fuel demand amid a spike in COVID-19 cases worldwide while an unexpected rise in U.S. gasoline inventories added to pressure.
Brent crude was down 85 cents or 1.3% at $67.38 a barrel by 0019 GMT, having fallen 1.2% on Wednesday. U.S. West Intermediate crude (WTI) lost 93 cents or 1.4% to $64.53 a barrel after tumbling 1.7% in the previous session.
Both benchmarks have lost more than 5% over the past six sessions, trading near their lowest level since May 24 in the previous session.
The slide continued as investors remained worried over the increase in infections caused by the Delta variant of the coronavirus worldwide.
“Crude prices continue to look vulnerable around those mid to late summer support levels – $65 in WTI and $67 in Brent,” Craig Erlam, senior market analyst at OANDA Europe, said in a note.
Dollar hits 9-month high as Fed on track to taper this year
The dollar rose to a nine-month high versus the euro and Australian and New Zealand currencies on Thursday, with Federal Reserve policy makers mostly in agreement that a stimulus taper would start this year.
The euro fell to $1.1684, and the kiwi slid to $0.6848.
The Australian dollar fell to $0.72125 but pared most of those losses to trade 0.07% lower at $0.72265 after Australia reported a stronger jobs market than economists expected.
The dollar index , which measures the currency against the euro, yen and four other rivals, climbed to 93.347, its highest since April 1.
The greenback added 0.2% to as high as 110.04 yen.
In minutes of their July 27-28 meeting released overnight, Fed officials saw the potential to ease bond-buying stimulus this year if the economy continues to improve as expected, although the condition of “substantial further progress” toward maximum employment had not yet been met.
A reduction in debt purchases is typically positive for the dollar as it means the Fed will not be flooding the financial system with cash.
The focus for Fed watchers now is the annual Jackson Hole, Wyoming symposium, which runs Aug. 26-28.
“Our read is that Fed officials will continue to signal ongoing steps toward normalizing policy, providing the USD with crucial ongoing underlying support,” Westpac strategists wrote in a client note.