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Apr 7, 2021

Stocks rise after Fed minutes as volume dwindles

BNN Bloomberg's mid-morning market update: April 7, 2021

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Stocks rose with the dollar and Treasuries fluctuated after the Federal Reserve refrained from signaling it will make any changes to its bond-buying program any time soon.

Volume on U.S. exchanges hit a new low for 2021, remaining under 10 billion shares. Despite the slow trading, the S&P 500 climbed to another record. A rally in giants such as Apple Inc. and Google’s parent Alphabet Inc. pushed the Nasdaq 100 higher. Benchmark 10-year yields were still below 1.7 per cent.

Traders sifted through the minutes from the latest Fed meeting, which indicated there would likely be “some time” before the conditions are met for scaling back the asset-purchase program of US$120 billion per month. Officials still saw elevated uncertainty in the growth outlook -- in line with an “accommodative” stance. Meanwhile, the central bank said the recent surge in Treasury yields reflected improved economic prospects. While Wall Street has been increasingly worried about inflation, policy makers saw those risks as balanced.

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“The rate side is still somewhat front and center, and probably the biggest risk to what is going on with equity valuations,” said Mark Heppenstall, chief investment officer at Penn Mutual Asset Management. “Clearly, there’s been a repricing of inflation expectations higher this year, and at times, the stock market has struggled with it. I would say that’s to me the biggest risk at this point -- that inflation readings start to come in to the point where the Fed potentially has to alter their plans.”

Rates are going higher for the “next several months, just like they have over the previous several months,” Jim Bianco, president of Bianco Research, said on a Bloomberg Television interview.

If yields are going up because the economy is reopening and massive real growth is expected, that “won’t bother the economy or the stock market,” Bianco said. “But if interest rates are going up because of inflation,” which is a loss of purchasing power, “that’s a problem for the economy and the stock market, and we’re going to continue to have that debate.”

Some key events to watch this week:

  • The 2021 Spring Meetings of the IMF and the World Bank Group take place virtually. Federal Reserve Chairman Jerome Powell takes part in a panel about the global economy on Thursday.
  • Japan releases its balance of payments numbers Thursday.
  • China’s consumer and producer prices data are due Friday.

These are some of the main moves in markets:

Stocks

  • The S&P 500 gained 0.1 per cent as of 4 p.m. New York time.
  • The Stoxx Europe 600 Index decreased 0.2 per cent.
  • The MSCI Asia Pacific Index fell 0.2 per cent.

Currencies

  • The Bloomberg Dollar Spot Index climbed 0.2 per cent.
  • The euro declined 0.1 per cent to US$1.187.
  • The Japanese yen weakened 0.1 per cent to 109.84 per dollar.

Bonds

  • The yield on two-year Treasuries fell less than one basis point to 0.15 per cent.
  • The yield on 10-year Treasuries rose two basis points to 1.68 per cent.
  • The yield on 30-year Treasuries rose four basis points to 2.36 per cent.

Commodities

  • West Texas Intermediate crude rose 0.5 per cent to US$59.65 a barrel.
  • Gold fell 0.4 per cent to US$1,736.73 an ounce.

--With assistance from Joanna Ossinger, Andreea Papuc, Robert Brand, Emily Barrett, Alexandra Harris, Lu Wang and Nancy Moran.

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