Equities Decline as Fed Shock Halts Global Rally: Markets Wrap

(Bloomberg) — U.S. equity futures and European stocks fell after the Federal Reserve downplayed expectations for a dovish reversal, saying interest rates will remain high for a longer period of time.

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Contracts on the benchmarks S&P 500 and Nasdaq 100 decreased by at least 0.9 percent. Amid a wave of rate hikes from Taiwan to Norway, demand for haven homes pushed the dollar and Swiss franc higher. The British pound extended losses after a half-point rate hike by the Bank of England. The euro fell before the decision of the European Central Bank. After Elon Musk sold $3.6 billion of his shares, Tesla Inc.

A global rate cut that had been softer than expected due to US inflation came to an abrupt halt on Wednesday after policymakers signaled a peak rate that was well above market expectations and sought to quash expectations for a rate cut next year. Chairman Jerome Powell reiterated that the central bank will not back down from its fight against inflation despite rising fears of job losses and recession.

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Jack McIntyre, money manager at Brandywine Global Investment Management, wrote in a note: “The Fed was more bearish than markets expected.” “They seem to still want the financial markets to tighten up, which actually means they want equity prices lower.”

An index of the dollar’s strength moved to its biggest gain since Dec. 5. The euro fell from a six-month high as the ECB was expected to follow the Fed with a half-point hike. The pound extended its losses after politicians in London delivered an expected hike, but there were growing doubts over their decision.

The Swiss franc held on to gains after the nation’s central bank doubled its policy rate to 1% as forecast. China’s yuan fell as poor economic data and rising Covid cases weighed.

Europe’s equity benchmark, the Stoxx 600, fell the most on a closing basis since Oct. 7. Tesla fell 1.7% in early New York trading after CEO Musk sold 22 million shares of the electric car maker for $3.58 billion. Western Digital Corp. It lost 4.8% as Goldman Sachs Group Inc. suggested selling the stock.

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Shorter-dated Treasury yields rose, with the two-year yield adding 1 basis point. The 10-year yield was little changed as investors weighed the economic impact of the Fed’s easing.

Oil traded between gains and losses after rising nearly 9% in the previous three sessions, as TC Energy Corp. part of the Keystone pipeline was restarted, allowing some flows to resume on the main channel.

This week’s main events:

  • ECB rate decision and ECB President Lagarde’s briefing, Thursday

  • Rate decisions for UK BOE, Mexico, Norway, Philippines, Switzerland, Taiwan, Thursday

  • US investment, business inventories, manufacturing output, retail sales, initial jobless claims, industrial production, Thursday

  • Eurozone S & P Global PMI, CPI, Friday

Some key movements in the markets:

Stocks

  • Futures on the S&P 500 fell 0.9% as of 7:01 a.m. New York time.

  • Futures on the Nasdaq fell 100% by 1.2%

  • Futures on the Dow Jones Industrial Average fell 0.7%

  • Stoxx Europe fell 600% by 1

  • The MSCI World Index fell 0.5%

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Currencies

  • The Bloomberg Dollar Index rose 0.6%

  • The euro fell by 0.6 percent to 1.0619 dollars

  • The British pound decreased by 0.9 percent and became 1.2314 dollars

  • The Japanese yen decreased by 0.8 percent and reached 136.59 dollars

Cryptocurrencies

  • Bitcoin fell 0.6 percent to $17,722.3

  • Ether fell 1.5% to $1,290.5

Bonds

  • The yield on 10-year Treasuries fell one basis point to 3.46%

  • Germany’s 10-year yield was little changed at 1.95%.

  • UK 10-year yield down nine basis points to 3.23%

Commodities

  • West Texas crude was little changed

  • Gold prices fell by 1.7% to 1788.40 dollars

This story was produced with the help of Bloomberg Automation.

— Assisted by Richard Henderson and Georgina Mckay.

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