Stocks Fall as Traders Eye Supersized Fed Hike: Markets Wrap

Stocks Fall as Traders Eye Supersized Fed Hike: Markets Wrap

(Bloomberg) — Stocks fell with U.S. stock futures, giving up early gains, as investors braced for another outsized U.S. interest rate hike amid growing concern that the Federal Reserve could tighten too much and increase the chances of a hard landing.

The Stoxx 600 index fell 0.8%, led by losses in real estate and miners. U.S. stock futures also fell after briefly trading higher, with those in the technology-heavy and rate-sensitive Nasdaq 100 underperforming the S&P 500.

The US central bank begins its meeting today and is expected to raise interest rates again by 75 basis points on Wednesday, signaling interest rates move above 4% and then stop. The long-wait strategy is rooted in the idea that the central bank would avoid the disastrous stance policy of the 1970s that allowed inflation to spiral out of control. Market participants dashed expectations for an even bigger hike, and only two of 96 economists in a Bloomberg survey now forecast a full point move.

“The Federal Reserve is likely to tighten policy right in the teeth of a recession,” Danielle DiMartino Booth, managing director and chief strategist at Quill Intelligence, wrote in an email. “The stock market’s addiction to Fed easing when stocks fall may be what Jerome Powell aims to counteract with an aggressive rate hike, in addition to inflation.”

Yields on the 10-year note topped 3.5%, while yields on the more policy-sensitive two-year yield hit their highest level since 2007 and are poised to top 4%, reflecting tougher fears.

Meanwhile, in a worrying trend for stocks, real interest rates — inflation-adjusted bond yields — rose to their highest level since 2011. Having been stuck in negative territory during a decade of easy money policies, real Interest rates were the key driver of the risk-asset rally.

Markets have priced in the two-year Treasury yield, approaching 4%, and “it could be a bit higher, but not much at this point,” said Peter Kinsella, head of currency strategy at Union Bancaire Privee Ubp SA. , he told Bloomberg Television. It would still make sense for the 10-year bond yield to reach 3.5% or 3.7%, “but there’s probably not much more juice in that trade,” he said.

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

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

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Key events this week:

  • US housing starts on Tuesday

  • BEI crude oil inventory report, Wednesday

  • US existing home sales, Wednesday

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

  • Bank of Japan monetary policy decision, Thursday

  • Bank of England interest rate decision, Thursday

  • US Conference Board leading index, initial jobless claims, Thursday

Some of the main movements in the markets:

inventories

  • S&P 500 futures were down 0.5% at 6:09 a.m. 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 was little changed

currency

  • The Bloomberg Dollar Spot index rose 0.2%

  • The euro fell 0.2% to $1.0003

  • The British pound was down 0.1% at $1.1417

  • The Japanese yen fell 0.3% to 143.70 per dollar

Bindings

  • The 10-year bond yield rose five basis points to 3.54%

  • Germany’s 10-year yield rose nine basis points to 1.89%

  • Britain’s 10-year yield rose 12 basis points to 3.25%

Goods

  • West Texas Intermediate crude was down 0.3% at $85.50 a barrel

  • Gold futures were down 0.1% at $1,676 an ounce

More stories like this are available at bloomberg.com

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