Stocks and bonds fell as Jerome Powell’s warning that the Federal Reserve would raise interest rates more than previously anticipated sapped risk appetite. The dollar gained.
(Bloomberg) — Stocks and bonds fell as Jerome Powell’s warning that the Federal Reserve would raise interest rates more than previously anticipated sapped risk appetite. The dollar gained.
Futures on the S&P 500 fell 1% in the wake of Wednesday’s 2.5% drop. The selloff spread to Europe and Asia, where China’s affirmation of its Covid-Zero stance dashed hopes of a reopening. Lumen Technologies Inc., Peloton Interactive Inc., Moderna Inc. and Qualcomm Inc. tumbled in premarket trading, while Etsy Inc. and EBay Inc. rose.
The Bank of England followed the Fed’s 75 basis-point increase with an equivalent hike on Thursday, but strongly pushed back against market expectations for the scale of future increases, warning that following that path would induce a two-year recession. The pound fell 1.8% to $1.1183.
Powell had disappointed traders betting on a pivot as the US economy remains resilient to stubbornly high inflation. The latest jobless claims held near a historic low, but the odds of a US recession are rising and the chances it will be mild are falling.
“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.”
Global bonds tumbled on Thursday in the wake of the Fed meeting. Two-year Treasury yields rose to 4.7%, but they’re still below the 5.06% peak in yields priced into Fed funds futures. Two-year gilt yields also fell.
“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.
Separately, 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.
Norway’s krone fell after its central bank delivered the smallest increase in its benchmark rate since June.
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.
Elsewhere, Pakistan’s former premier Imran Khan was injured and moved to a safe location after shots were fired at his rally in eastern Punjab province, his spokesman said.
Key events this week:
- 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
- Futures on the S&P 500 fell 1% as of 8:40 a.m. New York time
- Futures on the Nasdaq 100 fell 1.2%
- Futures on the Dow Jones Industrial Average fell 0.7%
- The Stoxx Europe 600 fell 1.8%
- The MSCI World index fell 1.6%
Currencies
- The Bloomberg Dollar Spot Index rose 0.8%
- The euro fell 0.7% to $0.9747
- The British pound fell 1.8% to $1.1183
- The Japanese yen fell 0.3% to 148.38 per dollar
Cryptocurrencies
- Bitcoin fell 0.5% to $20,080.87
- Ether rose 1% to $1,526.14
Bonds
- The yield on 10-year Treasuries advanced nine basis points to 4.19%
- Germany’s 10-year yield advanced 14 basis points to 2.28%
- Britain’s 10-year yield advanced 15 basis points to 3.55%
Commodities
- West Texas Intermediate crude fell 1.2% to $88.94 a barrel
- Gold futures fell 1.6% to $1,624.30 an ounce
–With assistance from Richard Henderson.
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