(Bloomberg) – Stocks and bonds fell as Jerome Powell’s warning that the Federal Reserve would raise interest rates more than expected sapped risk appetite. The dollar won.
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S&P 500 futures fell 0.8% following Wednesday’s 2.5% decline. The sell-off has spread to Europe and Asia, where China’s assertion of its Covid-Zero stance has dashed hopes of a reopening. Lumen Technologies Inc., Peloton Interactive Inc., Moderna Inc. and Qualcomm Inc. fell in premarket trading, while Etsy Inc. and EBay Inc. rose.
The Fed’s 75 basis point hike is expected to be followed by a similarly sized hike from the Bank of England later on Thursday, although rates there are potentially constrained by the risk of a severe recession. . Powell disappointed traders betting on a pivot as the US economy remains resilient to stubbornly high inflation.
“Every time the market gets a little dovish hope, it gets slapped on the nose with a rolled up newspaper,” said Scott Rundell, chief investment officer at Mutual Ltd. “There is still a lot of volatility ahead.”
Investors are worried about the impact of central bank tightening on economic growth, and Powell leaves little doubt that he is prepared to push rates as high as necessary to stamp out inflation. The odds of a recession in the United States are increasing and the odds of it being moderate are decreasing.
In addition, the President of the European Central Bank, Christine Lagarde, warned Thursday that a “mild recession” is possible but that it would not be enough on its own to stem the surge in prices.
The dollar rose as investors looked to US jobs data, which could help determine the pace of further rate hikes. The pound fell more than 1% as concerns grew that a weaker-than-expected BOE rise could deepen the pound’s slide, while the Norwegian krone fell after its central bank announced the smallest increase in its benchmark rate since June.
“There is likely some profit taking in the long dollar positions after the big moves after the outcome of the FOMC meeting and the Powell press conference,” David Forrester, senior FX strategist at Crédit Agricole CIB told Reuters. Hong Kong.
Global bonds fell on Thursday in the wake of the Fed meeting. Two-year Treasury yields rose to 4.71%, but are still below the 5.06% peak in yields priced in fed funds futures.
“Given the valuation of the bond market, markets are increasingly confident that the path to 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 for Ukrainian crop exports. Oil fell after Powell’s comments on interest rates overshadowed tighter supply.
Elsewhere, former Pakistani Prime Minister Imran Khan was injured while shooting at his rally, his spokesman said. No other details were immediately available.
Key events this week:
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Bank of England rate decision on Thursday
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U.S. factory orders, durable goods, trade, initial jobless claims, ISM services index, Thursday
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U.S. nonfarm payrolls, unemployment, Friday
Some of the major movements in the markets:
Shares
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S&P 500 futures fell 0.8% at 7:45 a.m. PT
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Nasdaq 100 futures fell 1.1%
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Dow Jones Industrial Average futures fell 0.6%
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The Stoxx Europe 600 fell 1.4%
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The MSCI World index fell 1.6%
Currencies
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The Bloomberg Dollar Spot Index rose 0.7%
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The euro fell 0.8% to $0.9737
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The British pound fell 1.3% to $1.1245
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The Japanese yen fell 0.3% to 148.28 per dollar
Cryptocurrencies
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Bitcoin fell 0.3% to $20,114.57
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Ether rose 1.2% to $1,529.59
Obligations
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The yield on 10-year Treasury bills rose eight basis points to 4.18%
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The German 10-year rate rose 11 basis points to 2.25%
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The UK 10-year yield rose nine basis points to 3.49%
Goods
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West Texas Intermediate crude fell 1.5% to $88.67 a barrel
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Gold futures fell 1.8% to $1,621.10 an ounce
–With the help of Richard Henderson.
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