(Bloomberg) — US Treasuries slumped and stocks pared declines as traders recalibrate their expectations in response to the Federal Reserve indicating that it will continue to raise interest rates to tamp down on inflation.
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The S&P 500 and the tech-heavy Nasdaq 100 trimmed earlier declines of more than 1%. US 10-year Treasury yields rose after St. Louis Fed President James Bullard said policymakers should increase interest rates to at least 5% to 5.25% to curb inflation. He also warned of further financial stress ahead.
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, Fed speakers have reiterated that they need to go further 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.
On Thursday afternoon, data showing mortgage rates in the US posting their biggest weekly decline since 1981 somewhat improved sentiment, even though Freddie Mac’s chief economist said there’s a long road ahead of the housing market.
“The key elements driving pretty much everything these days is around Fed policy. That’s very much been at the heart of what’s been driving markets this year,” said Steve Foresti, chief investment officer of asset allocation and research at Wilshire. “And looking at market moves from that context, I think, is incredibly helpful in understanding some of the reactions that we see.”
Prices for growth-sensitive oil and copper extended losses on signs of a dimming demand outlook. European Central Bank policy makers 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 dropped as Chancellor Jeremy Hunt outlined a £55 billion ($65 billion) package of tax rises and spending cuts even as the economy slid into recession. Gilt yields rose.
Key events this week:
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Fed’s Neel Kashkari, Loretta Mester speak, Thursday
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US Conference Board leading index, existing home sales, Friday
Some of the main moves in markets:
Stocks
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The S&P 500 fell 0.2% as of 1:01 p.m. New York time
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The Nasdaq 100 rose 0.2%
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The Dow Jones Industrial Average rose 0.1%
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The MSCI World index fell 0.8%
Currencies
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The Bloomberg Dollar Spot Index rose 0.6%
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The euro fell 0.4% to $1.0350
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The British pound fell 0.6% to $1.1838
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The Japanese yen fell 0.6% to 140.27 per dollar
Cryptocurrencies
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Bitcoin rose 0.9% to $16,688
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Ether rose 0.4% to $1,210.1
Bonds
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The yield on 10-year Treasuries advanced eight basis points to 3.77%
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Germany’s 10-year yield advanced two basis points to 2.02%
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Britain’s 10-year yield advanced five basis points to 3.20%
Commodities
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West Texas Intermediate crude fell 4.4% to $81.79 a barrel
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Gold futures fell 0.7% to $1,762.90 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Sujata Rao.
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2022-11-17 18:02:22
