US Stocks Decline on Deafening Chorus of Fed Hawks: Markets Wrap

(Bloomberg) — US stocks slumped and the dollar surged as Federal Reserve officials hammered home the message that they’re not nearing the end of their policy tightening regime and warned of more pain to come.

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The S&P 500 and the tech-heavy Nasdaq 100 declined more than 1%. US 10-year Treasury yields rose after St. Louis Fed President James Bullard became the latest policy maker to flag that interest rate rises had further to rise. Rates might need to rise to a 5%-7% range, Bullard said on Thursday while also flagging the risk of further financial stress.

Bullard’s comments came a day after San Francisco Fed President Mary Daly said a pause in rate hikes was “off the table.” With inflation only starting to ease after hitting decades-high levels, and a gauge of US retail sales increasing at the fastest pace in eight months, the message from Fed speakers is that they have further to go to extinguish prices pressures. Fresh data showing weekly jobless claims came in below the forecast in a Bloomberg survey further underscored the strength of the labor market.

“Bullard’s comments on the likely Fed funds rate-range between 5% and 7% have pushed yields higher and stocks lower,” said Peter Kinsella, global head of FX strategy at asset manager UBP in London. “His comments on the feasibility of a soft landing will also concern markets, because if that transpires we can forget about policy easing in 2023.”

With the Fed preparing to tighten policy further and a closely watched section of the Treasury yield curve hovering at levels not seen in four decades, investors are shifting focus to the outlook for the US economy. The so-called curve inversion has historically signaled that the world’s biggest economy is on the cusp of recession.

Prices for growth-sensitive oil and copper extended losses on signs of a dimming demand outlook. European Central Bank policymakers too are said to be mulling a smaller 50 basis-point rate hike next month, signaling their concern for the economy and pushing the euro lower.

The pound extended losses, falling about 1% against the dollar as Chancellor Jeremy Hunt Jeremy Hunt outlined a £55 billion ($65 billion) package of tax rises and spending cuts even as the economy slide into recession. Gilt yields jumped more than 8 basis points.

Read more: Watch UK Domestic Stocks as Chancellor Hunt Delivers Budget

Key events this week:

  • Fed’s Neel Kashkari, Loretta Mester speak, Thursday

  • US Conference Board leading index, existing home sales, Friday

Some of the main moves in markets:

Stocks

  • The S&P 500 fell 1.2% as of 9:30 am New York time

  • The Nasdaq 100 fell 1.5%

  • The Dow Jones Industrial Average fell 0.9%

  • The Stoxx Europe 600 fell 0.9%

  • The MSCI World index fell 0.8%

Currencies

  • The Bloomberg Dollar Spot Index rose 0.7%

  • The euro fell 0.6% to $1.0328

  • The British pound fell 1% to $1.1798

  • The Japanese yen fell 0.6% to 140.37 per dollar

cryptocurrencies

  • Bitcoin fell 0.4% to $16,469.89

  • Ether fell 1.4% to $1,188.8

bonds

  • The yield on 10-year Treasuries advanced eight basis points to 3.77%

  • Germany’s 10-year yield advanced three basis points to 2.02%

  • Britain’s 10-year yield advanced five basis points to 3.20%

commodities

  • West Texas Intermediate crude fell 1.7% to $84.10 a barrel

  • Gold futures fell 0.9% to $1,760.60 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Richard Henderson.

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