(Bloomberg) — US stocks extended declines in early trading as traders weighed the outlook for growth and monetary tightening, following the latest comments from Federal Reserve. The dollar snapped a three-day losing streak.
Both the S&P 500 and Nasdaq 100 fell following Tuesday’s risk rebound. The latest retail earnings reports underlined the impact of higher prices: Target Corp. tumbled more than 20% in early trading after trimming its profit forecast due to a surge in costs. Shares of retailers from Wallmart Inc. to Macy’s Inc. were also down.
Treasuries were mixed, with the 10-year Treasury yield lower after Tuesday’s selloff. In some of his most hawkish remarks to date, Fed Chair Jerome Powell said Tuesday that the US central bank will raise interest rates until there is “clear and convincing” evidence that inflation is in retreat.
The benchmark S&P 500 is emerging from the longest weekly slump since 2011, but rebounds in risk sentiment are proving fragile amid tightening monetary settings, Russia’s war in Ukraine and China’s Covid lockdowns.
“We’ll have this kind of volatility as people jump in and look at opportunities to buy as markets decline,” Shana Sissel, director of investments at Cope Corrales, said on Bloomberg Television, referring to the Wall Street bounce. The Fed is going to struggle to achieve a soft economic landing, she added.
The latest data from Europe didn’t offer any reassurance. New-vehicle sales shrank for a 10th month in a row as the industry remains mired in supply-chain crises, while euro-area inflation plateaued at a record high. Yields on most European bonds ticked higher as traders upped bets on European Central Bank tightening.
Meanwhile, UK inflation rose to its highest level since Margaret Thatcher was prime minister 40 years ago, adding to pressure for action from the government and central bank. The pound weakened as traders speculated that the Bank of England will struggle to rein in prices and avoid a recession.
Elsewhere, the Biden administration is poised to fully block Russia’s ability to pay US bondholders after a deadline expires next week, a move that could bring Moscow closer to a default. Sri Lanka, meantime, is on the brink of reneging on $12.6 billion of overseas bonds, a warning sign to investors in other developing nations that surging inflation is set to take a painful toll
What damage will be done to the US economy and global markets before the Fed changes tack and eases policy again? The “Fed Put” is the theme of this week’s MLIV Pulse survey. Click here to participate anonymously.
What to watch this week:
- G-7 finance ministers and central bankers meeting Wednesday
- Eurozone, UK CPI Wednesday
- Philadelphia Fed President Patrick Harker speaks Wednesday
- China loan prime rates Friday
Some of the main moves in markets:
Stocks
- The S&P 500 fell 1.5% as of 9:45 a.m. New York time
- The Nasdaq 100 fell 1.9%
- The Dow Jones Industrial Average fell 1.2%
- The Stoxx Europe 600 fell 0.9%
- The MSCI World index fell 1%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro fell 0.2% to $1.0531
- The British pound fell 0.6% to $1.2416
- The Japanese yen rose 0.7% to 128.52 per dollar
Bonds
- The yield on 10-year Treasuries declined three basis points to 2.96%
- Germany’s 10-year yield advanced one basis point to 1.06%
- Britain’s 10-year yield was little changed at 1.88%
Commodities
- West Texas Intermediate crude rose 0.4% to $112.83 a barrel
- Gold futures fell 0.4% to $1,811.80 an ounce
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