U.S. stocks slumped lower Tuesday, while the dollar eased modestly against its global peers and oil prices extended their recent rally, as investors adopted a cautious stance on risk as the Federal Reserve kicks-off its two day policy meeting in Washington.
Stocks closed modestly higher on Monday, although trading volumes were muted, as markets looked to an active week of central bank decisions, highlighted by the Fed statement Wednesday.
Traders have effectively locked-in bets that the Fed will hold its benchmark lending rate steady at between 5.25% and 5.5% later this week in Washington, with bets on a hike in November fading to around 28.7%.
Treasury bond yields have remained elevated, however, as investors also bet that the Fed, though its Summary of Economic Projections, also known as the 'dot plots', suggest that rates will remain at their current level well into 2024.
That thesis was given added heft by a stronger-than-expected reading for inflation in Canada, which sped to 4% last month, powered in part by the ongoing surge in domestic gasoline prices.
Benchmark 10-year notes were last seen trading at 4.337%, while 2-years notes were holding firmly above the 5% mark at 5.088% in early New York dealing while 5-year notes hit a fresh 2007 high of 4.5%.
The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.3% lower on the session at 105.1.
In other markets, global oil prices extended their recent rally to a fourth consecutive session Tuesday as supply concerns linked to production cuts from Russia and Saudi Arabia were exacerbated by softer-than-expected output forecasts from U.S.-based shale producers.
Brent crude futures for November delivery, the global pricing benchmark, were last seen 27 cents higher on the session and trading at a near 10-mohth peak of $94.70 per barrel.
WTI crude futures for October, which are tightly-linked to U.S. gas prices, were marked 45 cents higher at $91.93 per barrel, after hitting a one-year high of $93.71 earlier in the session.
Chevron (CVX) -) CEO Mike Wirth told Bloomberg radio Tuesday that it "certainly seems" as if oil is heading towards the $100 per barrel mark, given that "supply is tightening and inventories are drawing ... the trends would suggest that we're getting close."
On Wall Street, stocks turned lower at the start of trading, following a weaker-than-expected reading for August housing starts, with the S&P 500 down 25 points, or 0.55% while the Dow Jones Industrial Average falling 233 points. The Nasdaq was down 70 points, or 0.51%.
In Europe, the region-wide Stoxx 600 closed 0.05% lower in Frankfurt , despite early gains in energy and banking stocks, while Britain's FTSE 100 added 0.1% in London.
Overnight in Asia, Japan's Nikkei 225 closed 0.87% lower in Tokyo ahead of Friday's Bank of Japan rate decision, while the region-wide MSCI ex-Japan index was marked 0.16% lower into the close of trading.
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