US stocks end lower on concerns over tightening Fed policy

John BIERS
 

Wall Street stocks finished lower Wednesday following a midday reversal after Federal Reserve meeting minutes suggested the US central bank could move more quickly than expected to reduce its balance sheet.

US stocks had been solidly higher prior to the 1800 GMT release of the minutes following data that showed strong US private-sector hiring in March, according to payrolls firm ADP.

But the market reversed course after the Fed minutes. Earlier, stocks in Tokyo, Shanghai and Hong Kong all rose, while markets in Europe were mixed.

The Fed minutes of the March meeting showed policy makers wanted to move away, or slow, their post-crisis policy of reinvesting in Treasury bills and mortgage-backed securities, for which the Fed has built up a $4.5 trillion balance sheet.

"It looked as though we were going to have a good day because of the ADP numbers and the optimism about job growth, but then commentaries about the Federal Reserve thinking about cutting back its balance sheet has begun to give people pause," said Nicholas Colas, chief market strategist at Convergex.

Barclays (LSE: BARC.L - news) said in a note the discussion of the balance sheet came sooner than expected and appeared to be designed to give the market clear expectations.

"The desire to signal sooner than later is likely a function of the committee's wish to avoid adverse market reactions," the Barclays note said. "Communicating early -- and often -- could have been seen as the best remedy to avoid a 2013 'taper tantrum' reaction from markets."

Among major US indices, the Nasdaq (Frankfurt: 813516 - news) fell the most at 0.6 percent after earlier hitting an all-time intraday high earlier in the day.

The dollar was essentially flat against the euro and down against the pound and the yen. But some analysts think the greenback may be poised for gains.

"Higher rates coupled with a smaller balance sheet, currently at $4.5 trillion, depict an outlook of diminishing headwinds on the dollar that could keep its longer run prospects biased higher," said Joe Manimbo, senior market analyst at Western Union Business Solutions.

Markets are awaiting a number of key events this week, including a two-day summit between US President Donald Trump and his Chinese counterpart Xi Jinping that begins Thursday, and the release Friday of official US jobs figures for March.

- Key figures at 2040 GMT -

New York - Dow: DOWN 0.2 percent at 20,648.15 (close)

New York - S&P 500: DOWN 0.3 percent at 2,352.95 (close)

New York - Nasdaq: DOWN 0.6 percent at 5,864.48 (close)

London - FTSE 100: UP 0.1 percent at 7,331.68 (close)

Frankfurt - DAX 30: DOWN 0.5 percent at 12,217.54 (close)

Paris - CAC 40: DOWN 0.2 percent at 5,091.85 (close)

EURO STOXX 50: DOWN 0.3 percent at 3,472.58 (close)

Tokyo - Nikkei 225: UP 0.3 percent at 18,861.27 (close)

Hong Kong - Hang Seng: UP 0.6 percent at 24,400.80 (close)

Shanghai - Composite: UP 1.5 percent at 3,270.31 (close)

Euro/dollar: UP at $1.0672 from $1.0671

Pound/dollar: UP at $1.2491 from $1.2441

Dollar/yen: DOWN at 110.67 from 110.74 yen

Oil - Brent North Sea: UP 19 cents at $54.36 per barrel

Oil - West Texas Intermediate: UP 12 cents at $51.15 per barrel

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