New York: US stocks and gold retreated on Wednesday while U.S. Treasury yields shot higher after minutes from a Federal Reserve policy meeting in October suggested the U.S. central bank could begin to scale back its bond buying in the next few months.
Wall Street stocks, which had been higher, turned negative following the release of the minutes, while spot gold prices extended their early declines, falling 2.3 percent.
Fed officials felt they could decide to start scaling back the central bank`s massive USD85-billion-a-month asset-purchase program at one of the bank`s next meetings, provided this was warranted by economic growth, the minutes showed. Policymakers are next scheduled to gather on December 17-18.
"We take these minutes as meaning March is the most likely scenario for tapering. There`s no overwhelming case to be made for them to act in December," said Michael Woolfolk, senior currency strategist at BNY Mellon in New York.
Woolfolk said he was surprised by the relatively little attention given to the impact of the 16-day government shutdown in October.
"Maybe it really was a non-event, judging by today`s retail sales data and the October nonfarm payrolls," he said.
Comments from a senior Fed official that a solid U.S. jobs report for November would increase the likelihood of a reduction in bond purchases beginning as early as December gave a further boost to bond yields.
The Dow Jones industrial average ended down 66.21 points, or 0.41 percent, at 15,900.82. The Standard & Poor`s 500 Index was down 6.50 points, or 0.36 percent, at 1,781.37. The Nasdaq Composite Index was down 10.28 points, or 0.26 percent, at 3,921.27.
The euro fell sharply on a report saying the European Central Bank was considering a negative deposit rate.
Bloomberg reported that if the ECB were to take the deposit rate for cash it holds overnight for banks into negative territory, it would consider -0.1 percent. The current rate is zero. An ECB spokesperson declined to comment.
The euro fell to a low of USD1.3430, and last traded down 0.78 percent at USD1.3433. The U.S. dollar index rose 0.4 percent to 81.037.
The Fed`s stimulus and similar programs from other major central banks have fueled equity gains in 2013, taking Wall Street to repeated all-time highs and other regions around the world to multi-year highs.
The FTSEurofirst 300, which closed before the release of the Fed minutes, ended up 0.12 percent. The MSCI world share index fell 0.4 percent.
While the Fed`s accommodative monetary policy is expected to provide a floor under equities for as long as it continues, questions about its pullback have tempered buying enthusiasm. In addition, the size of the rally has market participants seeking new catalysts in an environment marked by signs of tepid economic growth.
U.S. equities were boosted early in the session by data showing consumer spending rose more than expected in October, while consumer prices unexpectedly fell.
Among other asset classes, Brent crude oil futures rose 0.9 percent to USD107.85 per barrel. U.S. crude fell 1 cent to settle at USD93.33.
The benchmark 10-year U.S. Treasury note fell 22/32 in price to yield 2.7896 percent.
First Published: Thursday, November 21, 2013, 09:53