Stocks Decline as Traders Eye Supersized Fed Rise: Markets Wrap

Stocks Decline as Traders Eye Supersized Fed Rise: Markets Wrap

(Bloomberg) — Stocks, paring early gains, fell as traders braced for another massive U.S. rate hike amid growing concerns that the Federal Reserve could overdo it and the possibility of rise in relation to a hard landing.

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The Stoxx 600 Index fell 0.4%, the pace of losses in real estate and miners. US equity futures also fell, with those on the tech-heavy and rate-sensitive Nasdaq 100 underperforming S&P 500 peers.

The US central bank begins its meeting today and is expected to raise rates again by 75 basis points on Wednesday, signaling rates are above 4% and then a pause. The long holding strategy is rooted in the idea that the central bank would avoid the disastrous stoppage policy of the 1970s which led to the rise of inflation. Market participants have dialed back their expectations for an even bigger increase and only two out of 96 economists in the Bloomberg survey are now predicting a full point move.

“The Federal Reserve is probably tightening policy right into the teeth of the recession,” Danielle DiMartino Booth, CEO and chief strategist of Quill Intelligence, wrote in an email. “The stock market’s addiction to dovish easing when stocks decline could be what Jerome Powell aims to nullify by hiking rates aggressively, along with inflation.”

The 10-year Treasury yield rose nearly 3.5% to its highest since 2007 for the more policy-sensitive two-year rate and is likely to hover above 4%, reflecting concerns about a landing hard.

Swap contracts forecasting rates over the next two years now peak at around 4.5% in March 2023 – a whole point higher than expected after the last meeting in July.

The markets have priced in the two-year Treasury yield at closer to 4% and “it may go a little bit higher, but not by much at this point,” Peter Kinsella, head of foreign exchange strategy at Union Bankaire Privee Ubp SA , said on Bloomberg Television. It would still be reasonable for the 10-year Treasury yield to go toward 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 stopped its monetary easing and defended a weakening yuan.

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

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This week’s highlights:

  • US housing starts on Tuesday

  • EIA crude oil inventory report, Wednesday

  • Current US home sales, Wednesday

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

  • Bank of Japan monetary policy decision, Thursday

  • Bank of England interest rate decision, Thursday

  • The US Conference Board’s leading index, initial jobless claims, Thursday

Some of the main moves in the markets:

Stock

  • The Stoxx Europe 600 fell 0.4% as of 10:19 London time

  • S&P 500 futures fell 0.3%

  • Futures on the Nasdaq 100 fell 0.5%

  • Futures on the Dow Jones Industrial Average fell 0.2%

  • The MSCI Asia Pacific Index rose 0.7%

  • The MSCI Emerging Markets Index rose 0.9%

Currencies

  • The Bloomberg Dollar Spot Index rose 0.2%

  • The euro fell 0.2% to $1.0007

  • The Japanese yen fell 0.4% to 143.76 per dollar

  • The offshore yuan fell 0.3% to 7.0227 per dollar

  • The British pound was little changed at $1.1427

Bonds

  • The yield on 10-year Treasuries advanced four basis points to 3.53%

  • The German 10-year yield advanced nine basis points to 1.90%

  • Britain’s 10-year yield advanced 10 basis points to 3.23%

Commodities

  • Brent crude rose 0.7% to $92.60 a barrel

  • Spot gold fell 0.5% to $1,667.80 an ounce

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