Stocks slip, dollar strengthens after Fed statement

Last Updated: Thu, May 04, 2017 02:02 hrs

By Chuck Mikolajczak

NEW YORK (Reuters) - World stock markets fell on Wednesday as declines in iPhone sales triggered some concern about consumers' health, while the dollar strengthened following the policy statement from the U.S. Federal Reserve.

The Fed, at the close of a two-day policy meeting, kept interest rates unchanged but downplayed weak first-quarter economic growth and emphasized the strength of the labor market, in a sign it could tighten monetary policy as early as June.

"The market is encouraged by the fact that the Fed sees the slowdown in Q1 as likely to be transitory," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.

"It suggests that the trend of improving growth is likely still intact, and as a result it means that we’ll probably see a Fed rate hike in June and probably again in September."

U.S. stocks held modest losses following the announcement.

Apple Inc closed down 0.3 percent but was well off session lows after it reported a surprise fall in iPhone sales in its fiscal second-quarter on Tuesday. The drop came on the heels of a decline in sales for U.S. automakers for April and a soft first-quarter reading on U.S. growth last week.

Apple still managed to top earnings estimates in what has been a strong quarter for U.S. companies. Thomson Reuters data shows first-quarter growth is currently expected to be 14.2 percent, the best quarter since 2011, with 357 of S&P 500 companies having reported.

Payrolls processor ADP reported that U.S. private employers expanded their payrolls by 177,000 jobs last month, the smallest gain since last October as they faced increasing difficulty finding qualified workers.

Other data indicated the pace of growth in the U.S. economy's service sector increased in April, led by a jump in new orders, according to an industry report.

The Dow Jones Industrial Average <.DJI> rose 8.01 points, or 0.04 percent, to 20,957.9, the S&P 500 <.SPX> lost 3.04 points, or 0.13 percent, to 2,388.13 and the Nasdaq Composite <.IXIC> dropped 22.82 points, or 0.37 percent, to 6,072.55.

Europe's STOXX 600 index <.STOXX> lost 0.04 percent to slip from a 20-month high, and MSCI's gauge of stocks across the globe <.MIWD00000PUS> shed 0.17 percent.

The dollar strengthened and Treasury yields rose after the Fed statement. Expectations for a June rate hike increased to a 75.2 percent chance of a rise of at least a quarter-point next month, according to CME's FedWatch tool.

The dollar index <.DXY> rose 0.35 percent, with the euro down 0.37 percent to $1.0887.

Benchmark 10-year notes last fell 7/32 in price to yield 2.3216 percent, from 2.296 percent late on Tuesday.

The U.S. Treasury earlier on Wednesday said it is studying the possibility of issuing ultra long-term bonds.

Oil prices settled with modest gains in choppy trade but were off earlier highs after U.S. government data showed a smaller-than-expected decline in domestic crude inventories and weak demand for gasoline, feeding concerns about a supply glut.

U.S. crude settled up 0.3 percent at $47.82 and Brent crude settled up 0.7 percent at $50.79 a barrel.

(Additional reporting by Dion Rabouin; Editing by Chizu Nomiyama and Leslie Adler)