By (Bloomberg) — Stocks dropped while U.S. futures drifted ahead of a key Federal Reserve meeting at which officials will deliver their outlook for the economy amid a budding recovery that risks stoking inflation. Treasury yields edged higher.
The Stoxx Europe 600 Index slipped as declines in retail shares outweighed gains for automakers. BMW AG shares rose 4% after the company forecast better profitability than analysts had estimated. Futures on the S&P 500 fluctuated. In Asia, South Korean stocks retreated as Samsung Electronics Co. warned it’s grappling with the fallout from a “serious imbalance” in semiconductors globally.
The Fed’s policy and outlook updates due Wednesday are center stage as the global recovery gains traction. The Treasury 10-year yield held around 1.63% heading into day two of the Fed’s meeting, after a 20-year bond auction drew strong demand. Market-implied inflation expectations are at 12-year highs. The dollar was stronger versus most major peers.
Rates markets are positioned for the Fed to raise borrowing costs sooner than current guidance suggests. Higher inflation expectations have boosted bond yields and sparked a rotation from growth to value stocks. Bond investor Bill Gross predicted in a Bloomberg TV interview that inflation will rise to 3% to 4% in the coming months.
“The concern is the assets that have worked best over the last decade — rates, credit of all kinds and long-duration equities — may not be the only games in town any more,” said David Wong, investment strategist at AllianceBernstein.
Elsewhere, WTI crude oil reversed a gain after the IEA said markets aren’t on the verge of a new price supercycle. Bitcoin held at about $56,000, below the weekend record above $61,000.
These are some key events this week:
Fed Chair Jerome Powell will likely reaffirm his steady policy stance at the Fed policy meeting Wednesday.Bank of England rate decision Thursday. BOE is expected to leave monetary policy unchanged.Bank of Japan monetary policy decision and Governor Haruhiko Kuroda briefing Friday.
These are the main moves in markets:
Stocks
Futures on the S&P 500 Index decreased 0.1% as of 9:14 a.m. London time.The Stoxx Europe 600 Index declined 0.3%.The MSCI Asia Pacific Index fell 0.3%.The MSCI Emerging Market Index fell 0.5%.
Currencies
The Bloomberg Dollar Spot Index jumped 0.1%.The euro was little changed at $1.1906.The British pound increased 0.1% to $1.3898.The onshore yuan strengthened 0.1% to 6.502 per dollar.The Japanese yen weakened 0.1% to 109.12 per dollar.
Bonds
The yield on 10-year Treasuries advanced two basis points to 1.64%.The yield on two-year Treasuries climbed less than one basis point to 0.15%.Germany’s 10-year yield gained one basis point to -0.33%.Britain’s 10-year yield jumped three basis points to 0.819%.Japan’s 10-year yield dipped less than one basis point to 0.1%.
Commodities
West Texas Intermediate crude declined 0.3% to $64.63 a barrel.Brent crude declined 0.4% to $68.10 a barrel.Gold strengthened 0.2% to $1,734.74 an ounce.
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