Fed minutes confirm December rate hike as markets rebound

Market snapshot:

• Gold declined $53 to $4110.
• WTI crude oil lost 96 cents, closing at $88.48.
• US 10-year yields increased 0.2 bps to 5.27%.
• The S&P 500 edged down 0.1%.
• The USD outperformed, with the EUR lagging.

At one point, rising bond yields threatened to derail market sentiment, but an improbable recovery followed without any clear catalyst. The oil market provided the main support, reversing despite tighter US inventories and another attack on Saudi pumping stations.

Early concerns centered on Europe, where yields were climbing. That pressure was partly eased by a report that France is considering increasing short-dated debt issuance, a classic move for countries facing a fiscal squeeze. The move offered temporary relief, and global yields reversed their earlier advances. US yields also turned lower, with the 30-year bond falling from a 24-year high of 5.73% to 5.66%. The strong 10-year auction may have added further downward pressure on yields.

Equities showed resilience after a poor start. Consistent dip-buying activity recouped most of the losses. Winners included power generation stocks, Micron, and healthcare names. On the downside, Caterpillar fell 6%, and chip stocks such as TXN, MCHP, and NXPI also underperformed. Declining issues outnumbered advancing ones by nearly two to one.

In foreign exchange, the US dollar largely held onto its gains despite the yield reversal, as buying pressure remained relentless. There appears to be a shift away from the euro on debt worries, while commodity currencies are weakening even with better signs of global growth.

The FOMC minutes contained no surprises but emphasized the pattern of waiting in October and hiking in December. The increasingly firm messaging raises the stakes for the September CPI report, though the US economic calendar for the rest of the week is light.