Global stocks fell to a six-week low, sovereign bonds slumped and commodities dropped after minutes of the Federal Reserve’s last meeting put the prospect of a June interest-rate hike firmly on the table. A gauge of the dollar’s strength held gains following its biggest jump in six months.
The MSCI All Country World Index declined for a third day after the Fed record showed most of its rate-setting officials were in favor of boosting borrowing costs next month should the U.S. economy continue to improve. Singapore’s 10-year bonds slid by the most in four weeks after U.S. Treasuries posted their biggest losses of the year. Currencies in Australia, China and South Korea sank to two-month lows, while crude oil retreated and copper fell to levels last seen in February. Gold and silver slipped to fresh lows for the month.
The Fed minutes provided a jolt to markets that had until Monday all but ruled out the prospect of U.S. borrowing costs being raised in June. Fed Funds futures show the odds of such a move surged to 32 percent on Wednesday, after tripling to 12 percent in the prior session as data on inflation, housing starts and industrial production exceeded economists’ forecasts. The shift 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 minutes showed that the policy makers’ desires to raise rates in June exceeded the market’s expectation for action,” said Mitsushige Akino, an executive officer at Ichiyoshi Asset Management Co in Tokyo. “The U.S. economy is doing so well that the FOMC can hike rates. But the global economy is on the decline and investors are not sure whether the Fed can really increase interest rates or not.”
An index of leading indicators in the U.S. is due to be released on Thursday, while the U.K. will report on retail sales. Australian figures showed the nation’s unemployment rate held at a 2 1/2 year low, while the Philippines announced first-quarter economic growth that was the fastest since 2013. Fed Vice Chairman Stanley Fischer and New York Fed chief William Dudley are scheduled to speak, while Wal-Mart Stores Inc. is among American companies reporting earnings.
The Stoxx Europe 600 Index dropped 0.6 percent as of 8:18 a.m. London time
Technip SA jumped 14 percent after it and FMC Technologies announced plans to merge. Bayer AG tumbled 6.2 percent after Monsanto Co., the world’s largest seed maker, said it received an unsolicited takeover approach from the German company. Merck KGaA advanced to a four-month high after reporting earnings that beat analysts’ estimates.
The MSCI Asia Pacific Index declined 0.9 percent, led by slides in raw-material producers and energy stocks. BHP Billiton Ltd., the world’s largest mining company, dropped 3.7 percent in Sydney. Inpex Corp., Japan’s largest oil and gas explorer, tumbled by the most since February. Tencent Holdings Ltd. fell by the most 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.
Futures on the S&P 500 lost 0.3 percent.
The Bloomberg Dollar Spot Index gained 0.1 percent, after jumping 0.8 percent on Wednesday. The Japanese yen was little changed at 110.26 per dollar, following a 1 percent slide in the last session.
“While the risk of a June hike can no longer be ignored, this isn’t an environment where the market will aggressively price in odds higher than 50 percent,” said Yousuke Hosokawa, head of the currency sales team at Sumitomo Mitsui Trust Bank in Tokyo. “That means it’s hard to buy dollars aggressively above the 110 yen level.”
Australia’s dollar weakened as much as 0.5 percent, while currencies in Indonesia, Malaysia and South Korea dropped by about 0.8 percent. South Africa’s rand was little changed, after tumbling 2 percent in the last session. Malaysia, Indonesia and South Africa are set to review monetary policy on Thursday.
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. The yield on Singapore’s 10-year debtincreased by six basis points to 2.08 percent. Yields on similar-maturity U.S. 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.”
West Texas Intermediate crude dropped 1.5 percent to $47.45 a barrel, extending Wednesday’s retreat from a seven-month high.
The dollar’s increase coupled with renewed concern over the global oil glut unsettled markets, with U.S. crude inventories unexpectedly rising by 1.3 million barrels last week, according to data issued on Wednesday. Rain in Canada may have also slowed fires that have shifted back toward the province of Alberta’s oil-sands operations.
Copper, nickel and zinc fell by at least 0.7 percent in London. Gold declined 0.4 percent, after a 1.6 percent slide on Wednesday, and silver was down 1.5 percent.