US stocks dropped as fresh data painted a picture of an economy that can handle further interest-rate hikes that Federal Reserve officials have been warning investors about.
(Bloomberg) — US stocks dropped as fresh data painted a picture of an economy that can handle further interest-rate hikes that Federal Reserve officials have been warning investors about.
The S&P 500 fell as much as 2.7% after St. Louis Fed President James Bullard didn’t back down from his hawkish stance and said investors have now understood that they can’t escape additional rate hikes in coming months. Better-than-expected 2Q core PCE and personal consumption numbers on Thursday also paved the path for the central bank to stay aggressive. Weekly jobless claims fell to the lowest since April, showing a persistently tight labor market.
The tech-heavy Nasdaq 100 fell as much as 3.4%. It was dragged down by a decline in Apple Inc. shares after the firm suffered a rare downgrade from Bank of America analysts, who warned of weaker consumer demand for its popular products.
US Treasuries trimmed Wednesday’s gains, with the 10-year yield climbing to around 3.79%. UK gilt yields rose after Prime Minister Liz Truss’s defense of unfunded tax cuts that sent markets into turmoil failed to persuade investors.
Investors are contending with threats posed by discordant moves from central banks over the past few days, with Fed officials adamant on further monetary tightening, the BOE unveiling a plan to support government debt and authorities in Asia trying to prop up weakening currencies.
“The market is down coming to terms with the idea that a recession is almost a given at this point and it’s really making adjustments for that,” said Shawn Snyder, head of investment strategy at Citi US Wealth Management. “You also have some turmoil going on in the United Kingdom, with the gilts taking a hit and currency tumbling due to the inflationary fiscal policy being projected there. And then you have the Nord Stream too, with some of the sabotage that could make things even worse, so I think all that combined is creating more jitters.”
Fed officials haven’t shied away from warning that more rate-hike pain is yet to come, with Cleveland Fed President Loretta Mester echoing the rhetoric that her colleagues reinforced this week. Recession fears persisted as a gap in the government’s two primary measures of US economic activity during the first half of 2022 narrowed. The National Bureau of Economic Research’s Business Cycle Dating Committee uses this metric and other variables to make any recession call.
For markets to stabilize, “investors will need to see convincing evidence that inflation is coming under control, allowing central banks to become less hawkish,” said Mark Haefele, chief investment officer at UBS Global Wealth Management. “This turn, in our view, is still some time away.”
Separately, the European Commission announced an eighth package of sanctions that would include a price cap on Russia’s oil exports as Russia vowed to go ahead with the annexation of the parts of Ukraine that its troops currently control after UN-condemned votes, putting the Kremlin on a fresh collision course with the US and its allies.
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Key events this week:
- Fed’s Mary Daly speak at an event, Thursday
- China PMI, Friday
- Euro zone CPI, unemployment, Friday
- US consumer income , University of Michigan consumer sentiment, Friday
- Fed’s Lael Brainard and John Williams speak, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 fell 2.2% as of 10:59 a.m. New York time
- The Nasdaq 100 fell 2.9%
- The Dow Jones Industrial Average fell 1.6%
- The Stoxx Europe 600 fell 2.1%
- The MSCI World index rose 1.1%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro rose 0.3% to $0.9762
- The British pound rose 1.3% to $1.1026
- The Japanese yen fell 0.3% to 144.63 per dollar
Cryptocurrencies
- Bitcoin fell 1.9% to $19,189.62
- Ether fell 2.2% to $1,320.57
Bonds
- The yield on 10-year Treasuries advanced six basis points to 3.79%
- Germany’s 10-year yield advanced 11 basis points to 2.23%
- Britain’s 10-year yield advanced 13 basis points to 4.14%
Commodities
- West Texas Intermediate crude fell 0.5% to $81.74 a barrel
- Gold futures fell 0.7% to $1,658.50 an ounce
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