Stocks and US futures fell after Jerome Powell said the Federal Reserve would raise interest rates more than previously anticipated, sapping risk appetite. Global bond yields rose.
(Bloomberg) — Stocks and US futures fell after Jerome Powell said the Federal Reserve would raise interest rates more than previously anticipated, sapping risk appetite. Global bond yields rose.
The selloff spread in the wake of the S&P 500’s 2.5% drop on Wednesday. Chinese shares in Hong Kong underperformed after an affirmation of the government’s Covid-Zero stance dashed hopes of a reopening.
The Fed raised rates 75 basis points for the fourth time in a row, bringing the top of its target range to 4%, the highest level since 2008. Traders immediately raised the market-implied peak in interest rates for next year and turn their attention to the Bank of England’s decision later on Thursday.
“Every time the market gets a little bit of dovish hope, it gets smacked on the nose with a rolled up newspaper,” said Scott Rundell, chief investment officer at Mutual Ltd. “There’s a lot of volatility still ahead.”
Investors are concerned about the impact of central bank tightening on economic growth, and Powell left little doubt that he’s prepared to push rates as high as needed to stamp out inflation. European Central Bank President Christine Lagarde warned on Thursday that a “mild recession” is possible but that it wouldn’t be sufficient in itself to stem soaring prices.
The pound fell more than 1%, with the BOE expected to deliver its biggest interest-rate increase in 33 years, while Norway’s krone fell after its central bank delivered the smallest increase in its benchmark rate since June. The dollar gained as investors looked toward US jobs data, which may help to determine the pace of upcoming rate hikes.
“There is likely some profit taking in long dollar positions after the big moves post the FOMC meeting outcome and Powell’s press conference,” said David Forrester, a senior FX strategist at Credit Agricole CIB in Hong Kong.
Global bonds tumbled on Thursday in the wake of the Fed meeting. Two-year Treasuries led a selloff on Wednesday following Powell’s comments, but at 4.62% they are still about 40 basis points below the 5.06% peak in yields priced into Fed funds futures.
“Factoring in the bond market’s assessment, markets are becoming increasingly convinced that the path toward the terminal rate will include a recession,” said Quincy Krosby, chief global strategist at LPL Financial.
Wheat prices fell after Russia agreed to resume a deal allowing safe passage of Ukrainian crop exports. Oil dropped after Powell’s comments on interest rates overshadowed tightening supply.
Key events this week:
- Bank of England rate decision, Thursday
- US factory orders, durable goods, trade, initial jobless claims, ISM services index, Thursday
- US nonfarm payrolls, unemployment, Friday
Some of the main moves in markets:
Stocks
- The Stoxx Europe 600 fell 0.8% as of 9:30 a.m. London time
- Futures on the S&P 500 fell 0.1%
- Futures on the Nasdaq 100 fell 0.2%
- Futures on the Dow Jones Industrial Average were little changed
- The MSCI Asia Pacific Index rose 0.8%
- The MSCI Emerging Markets Index rose 0.6%
Currencies
- The Bloomberg Dollar Spot Index rose 0.6%
- The euro fell 0.6% to $0.9757
- The Japanese yen fell 0.2% to 148.26 per dollar
- The offshore yuan was little changed at 7.3475 per dollar
- The British pound fell 1.1% to $1.1262
Cryptocurrencies
- Bitcoin rose 0.6% to $20,304.89
- Ether rose 2.6% to $1,550.75
Bonds
- The yield on 10-year Treasuries advanced seven basis points to 4.17%
- Germany’s 10-year yield advanced 10 basis points to 2.24%
- Britain’s 10-year yield advanced nine basis points to 3.49%
Commodities
- Brent crude fell 1.3% to $94.89 a barrel
- Spot gold fell 0.8% to $1,621.78 an ounce
–With assistance from Richard Henderson.
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