Selling deepens as BoE focused after Fed warning: Markets wrap

(Bloomberg) — Stocks and bonds tumbled as Jerome Powell warned that the Federal Reserve would raise interest rates more than previously expected, denting risk appetite. Earn the dollar.

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S&P 500 futures are down 0.7% following Wednesday’s 2.5% drop. The sell-off extended to Europe and Asia, where China’s confirmation of its Covid-Zero stance dashed hopes of a reopening. Moderna Inc.’s shares fell. and Qualcomm Inc. and Roku Inc. In pre-market trading, while shares of Etsy Inc. and EBay Inc.

The Fed’s 75 basis point increase is likely to be followed by a similar rally from the Bank of England later on Thursday, although rates may be limited 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 pessimistic, it hits a foldout. There is still a lot of volatility ahead,” said Scott Rundell, chief investment officer at Mutual Ltd..

Investors are concerned about the impact of central bank tightening on economic growth, and Powell leaves no doubt that he is willing to push interest rates as high as possible to stem inflation. European Central Bank President Christine Lagarde warned on Thursday that a “moderate recession” could occur but that by itself would not be enough to stem price increases.

The dollar rose as investors looked to the US jobs data, which may help set the pace for upcoming interest rate hikes. Sterling fell more than 1% as concern grew that a smaller-than-expected increase in the Bank of England could double the pound’s decline, while the Norwegian krone fell after the central bank made the smallest increase in the benchmark interest rate since June.

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“There is likely to be some profit-taking in dollar longs after the big moves following the FOMC meeting and Powell’s press conference,” said David Forrester, senior FX analyst at Credit Agricole CIB in Hong Kong.

Global bonds fell on Thursday in the wake of the Federal Reserve’s meeting. Two-year Treasury yields rose to 4.71%, but are still below the 5.06% peak in yields quoted in Fed Fund futures.

“Taking into account the valuation of the bond market, markets are increasingly convinced that the path toward the eventual interest rate will include a recession,” said Quincy Crosby, chief global strategist at LBL Financial.

Wheat prices fell after Russia agreed to resume a deal allowing safe passage of Ukrainian crop exports. Oil fell after Powell’s comments on interest rates overshadowed tight supply.

This week’s main events:

• Bank of England interest rate decision, Thursday

• US Factory Orders, Durable Goods, Trade, Initial Jobless Claims, ISM Services Index, Thursday

• US Nonfarm Payrolls, Unemployment, Friday

Some of the main movements in the markets:

Stores

• S&P 500 futures were down 0.7% as of 7:15 a.m. New York time

• Nasdaq 100 futures fell 0.9%

• Futures on the Dow Jones Industrial Average were down 0.5%.

• The Stoxx Europe 600 Index is down 1.2%.

• The MSCI World Index is down 1.6%.

coins

• Bloomberg spot dollar index rose 0.6%.

• The euro fell 0.8 percent to $0.9744

• The British pound fell 1.1 percent to $1.1261

• The Japanese yen fell 0.2 percent to 148.21 per dollar

Cryptocurrency

• Bitcoin rose 0.4% to $2,0249.94

• Ether rose 2% to $1,541.44

bonds

• The 10-year Treasury yield advanced nine basis points to 4.19%.

• The 10-year yield in Germany rose 10 basis points to 2.24%.

• UK 10-year bond yield advances six basis points to 3.46%

goods

• West Texas Intermediate crude fell 1.5 percent to $88.64 a barrel

• Gold futures fell 1.6 percent to $1,623.70 an ounce

– With assistance from Richard Henderson.

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