Stocks dropped as Treasury yields continued to climb, with traders betting the Federal Reserve will keep raising interest rates until inflation is defeated, and as investors assessed companies’ resilience to a multitude of headwinds in the latest earnings reports.
(Bloomberg) — Stocks dropped as Treasury yields continued to climb, with traders betting the Federal Reserve will keep raising interest rates until inflation is defeated, and as investors assessed companies’ resilience to a multitude of headwinds in the latest earnings reports.
US equities were set to trim a weekly advance, with S&P 500 and Nasdaq 100 contracts sliding.
American Express Co. fell in premarket trading after it set aside more for bad loans than analysts expected, suggesting rising rates could start crimping customers’ ability to pay their bills. European stocks fell 1.8% as sportswear maker Adidas AG plunged the most since March 2020 after a profit warning.
Investor attention is still keenly focused on the UK, where the Conservative Party is desperate to draw a line under Liz Truss’s disastrous premiership with a rapid leadership contest.
The pound slumped more than 1% and yields on 10-year UK government debt rose following reports that a detailed fiscal plan may be delayed by the selection process.
The dollar was boosted by hawkish US central bank comments.
Yields on US 5-year and 10-year notes both rose to levels last seen in 2007 as traders priced in a higher peak Fed policy rate. The yen weakened further beyond the closely watched 150 per dollar level, fueling speculation that more intervention will be needed to support the Japanese currency.
“The move for US Treasuries is reminiscent of 2007 and we may see the pressure on the market persist until yields reach levels last seen just before the 2008 crisis, where the 2-year topped out at just over 5% and the 10-year nearly reached 5.30%,” economists at Rand Merchant Bank said in a note Friday.
“With yields at current levels, it is not surprising to see that the greenback remains supported –pressuring most risk assets — while equity market volatility remains high.“
Remarks from Fed officials supporting further rate hikes and swaps pricing in a 5% peak policy rate in 2023 should continue to buoy the dollar.
The yield on 10-year Treasuries headed for a 12-week streak of increases that would match the duration of the 1984 episode when then-Fed Chairman Paul Volcker was carrying out a series of rapid rate increases.
Meanwhile, US equity volatility is showing no signs of abating ahead of Friday’s $2 trillion options expiration and amid another raft of corporate earnings.
While the S&P 500 index is higher on the week, it has struggled to rise for two consecutive weeks since mid-August.
In New York premarket, Snap Inc. sank as much as 29% after the social-media company missed third-quarter revenue estimates, a sign of weakness for the online ad market.
Twitter Inc., Meta Platforms Inc., Pinterest Inc. and Google parent Alphabet Inc. were also lower.
Despite deeply pessimistic sentiment, equity funds are still seeing inflows, with “final capitulation” not yet here, according to strategists at Bank of America Corp.
Global stock funds had inflows of $9.2 billion in the week through Oct. 19, according to a note from the bank citing EPFR Global data. With inflation remaining persistently high and risks of a recession growing, stock markets have more room to fall, strategist Michael Hartnett wrote.
Hartnett said he remains negative “despite ubiquitous bear sentiment,” with global recession and credit shocks just starting.
Elsewhere, oil fluctuated at the end of a rocky week as traders weighed concerns over a global economic slowdown against signs of crude market tightness.
Iron ore was on track for its longest stretch of weekly declines since 2016 amid mounting worries over the global outlook for steel demand.
Some of the main moves in markets:
Stocks
- Futures on the S&P 500 fell 0.8% as of 8:29 a.m.
New York time
- Futures on the Nasdaq 100 fell 1.3%
- Futures on the Dow Jones Industrial Average fell 0.7%
- The Stoxx Europe 600 fell 1.8%
- The MSCI World index fell 0.8%
Currencies
- The Bloomberg Dollar Spot Index rose 0.7%
- The euro fell 0.7% to $0.9715
- The British pound fell 1.4% to $1.1075
- The Japanese yen fell 1.1% to 151.81 per dollar
Cryptocurrencies
- Bitcoin fell 1.3% to $18,773.71
- Ether fell 1.4% to $1,263.7
Bonds
- The yield on 10-year Treasuries advanced nine basis points to 4.31%
- Germany’s 10-year yield advanced 11 basis points to 2.51%
- Britain’s 10-year yield advanced 19 basis points to 4.10%
Commodities
- West Texas Intermediate crude was little changed
- Gold futures fell 0.7% to $1,625.10 an ounce
–With assistance from Tassia Sipahutar.
More stories like this are available on bloomberg.com
©2022 Bloomberg L.P.
