Stocks Fall as Traders Watch for Superb Fed Rise: Markets Pack

Stocks Fall as Traders Watch for Superb Fed Rise: Markets Pack

(Bloomberg) — Equities fell on U.S. stock futures, giving up early gains as traders brace for another super-sized U.S. rate hike amid mounting fears the Federal Reserve could overtighten and risk a hard landing. enlarge.

The Stoxx 600 Index fell 0.8%, accelerated by losses on real estate and miners. US stock futures also fell after briefly trading higher, with those on the tech-heavy and interest-rate sensitive Nasdaq 100 underperforming S&P 500 peers.

The US central bank kicks off its meeting today and is expected to hike rates again by 75 basis points on Wednesday, the signal rate rises above 4% and then pauses. The long-hold strategy is rooted in the idea that the central bank would avoid the disastrous stop-go policies of the 1970s, which allowed inflation to spiral out of control. Market participants have rolled back expectations of an even bigger rise, and only two of 96 economists in a Bloomberg survey are now forecasting a full-scale move.

“The Federal Reserve is likely tightening its policies against a backdrop of recession,” Danielle DiMartino Booth, CEO and chief strategist of Quill Intelligence, wrote in an email. “The stock market’s addiction to the Fed’s easing when stocks fall may be what Jerome Powell is trying to counter by aggressively raising rates in addition to inflation.”

The 10-year government bond yield rose to 3.5%, while the yield on the more policy-sensitive two-year yield reached its highest level since 2007 and is poised to climb above 4%, reflecting fears of a hard landing.

Meanwhile, in a worrying trend for equities, real interest rates — government bond yields adjusted for inflation — rose to their highest levels since 2011. When they were in negative territory during a decade of easy-money policies, the real interest has been a key factor. driver of risk asset rallies.

Markets have reasonably priced in the yield on the two-year Treasury bonds approaching 4% and “it could scratch a little higher, but not much at the moment,” Peter Kinsella, head of currency strategy at Union Bancaire Privee Ubp SA, said on Bloomberg Television. It would still be reasonable for 10-year Treasury yields to move towards 3.5% or 3.7%, “but there probably isn’t much left in that trade,” he said.

In China, banks kept their key lending rates unchanged after the central bank paused its monetary easing and defended a weakening yuan.

Elsewhere, Bitcoin struggled to bounce back to the $20,000 level. Oil fell below $86 a barrel and gold fell.

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Main events this week:

  • US housing starts, Tuesday

  • EIA Crude Oil Inventory Report, Wednesday

  • US Existing Home Sales Wednesday

  • Federal Reserve decision, followed by a press conference with Chairman Jerome Powell, Wednesday

  • Bank of Japan monetary policy decision, Thursday

  • The Bank of England’s interest rate decision, Thursday

  • US Conference Board Leading Index, First Jobless Claims, Thursday

Some of the key moves in markets:

Shares

  • S&P 500 futures fell 0.5% as of 6:09 AM New York time

  • Nasdaq 100 futures fell 0.6%

  • Dow Jones Industrial Average futures fell 0.4%

  • The Stoxx Europe 600 fell 0.8%

  • The MSCI World index had changed little

currencies

  • The Bloomberg Dollar Spot Index rose 0.2%

  • The euro fell 0.2% to $1,003

  • The British pound fell 0.1% to $1.1417

  • The Japanese yen fell 0.3% to 143.70 per dollar

bonds

  • 10-Year Treasury yield rose five basis points to 3.54%

  • German 10-year yield rose by nine basis points to 1.89%

  • UK 10-year yield rose 12 basis points to 3.25%

Raw materials

  • West Texas Intermediate crude fell 0.3% to $85.50 a barrel

  • Gold futures fell 0.1% to $1,676 an ounce

More stories like this are available at bloomberg.com

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