Stocks and commodities dropped as the prospect of aggressive Federal Reserve monetary tightening lifted a dollar gauge to another record Wednesday.
(Bloomberg) — Stocks and commodities dropped as the prospect of aggressive Federal Reserve monetary tightening lifted a dollar gauge to another record Wednesday.
Europe’s Stoxx 600 Index fell 0.4%, with tumbling miners and energy companies leading the declines. An Asian equity gauge slid to levels last seen in the pandemic fallout of 2020. Contracts on the S&P 500 and Nasdaq 100 erased losses to post modest gains.
Greenback strength stoked by higher Treasury yields and worries about the economic outlook is rippling across the world, leading to tighter financial conditions that could further undermine risk assets.
The 30-year US Treasury yield was around the highest since 2014 amid a bond selloff exacerbated by bets on another 75 basis points Fed interest-rate hike to tackle high inflation. Traders are also bracing for a European Central Bank rates decision due on Thursday, with the potential for a similar-size move.
Aside from tightening monetary settings and an apparently unstoppable dollar, markets are also contending with a debilitating energy crisis in Europe and Covid lockdowns in China. Concerns are growing about the outlook for company earnings given the various global economic headwinds.
“Many investors are walking on egg shells,” Kristina Hooper, chief global market strategist at Invesco, said on Bloomberg Television. “The real issue is that it could be a one-two punch. We could see the Fed continuing to pummel the economy with a significant rate hike, lets say 75 basis points, and then of course we get downward revisions to earnings that are significant.”
In commodities, crude plunged to the lowest since January and iron ore extended declines. Bitcoin flirted with a test of lows for the year and gold recovered to trade above $1,700 an ounce.
European policymakers are pulling together proposals to bring to a meeting of energy ministers in Brussels on Friday where emergency interventions will be hammered out to address the region’s energy crisis. Meanwhile, Deutsche Bank AG Chief Executive Officer Christian Sewing warned Wednesday that Germany won’t be able to avert a recession.
Asian officials responded as the dollar steamrolled through the region’s currencies on Wednesday. In Japan, the yen sank 1% and officials warned they are concerned about rapid, one-sided moves. China, meanwhile, set its yuan reference rate with the strongest bias on record — a signal of discomfort with a swooning currency.
While global stocks are on pace for their worst run since the European debt crisis a decade ago, Goldman Sachs Group Inc. strategists are among those warning that more selling is possible. The MSCI All Country World Index is in its longest losing stretch since 2011 and rapidly erasing a bounce from mid-June that a Goldman team led by Peter Oppenheimer described as a “bear market rally.”
The decline is not unusual relative to the experience of previous decades, the strategists wrote in a note. “We expect further weakness and bumpy markets before a decisive trough is established.”
What to watch this week:
- Apple event due to feature new iPhones, watches, Wednesday
- Bank of England Governor Andrew Bailey at Treasury Committee, Wednesday
- Fed’s Beige Book of regional economic activity, Wednesday
- Cleveland Fed President Loretta Mester due to speak, Wednesday
- European Central Bank rate decision, Thursday
- Fed Chair Jerome Powell due to speak, Thursday
- Chicago Fed President Charles Evans and his Minneapolis counterpart Neel Kashkari due to speak, Thursday
- EU energy ministers extraordinary meeting on emergency intervention in electricity markets, Friday
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Some of the main moves in markets:
Stocks
- The Stoxx Europe 600 fell 0.4% as of 9:08 a.m. London time
- Futures on the S&P 500 rose 0.2%
- Futures on the Nasdaq 100 rose 0.4%
- Futures on the Dow Jones Industrial Average were little changed
- The MSCI Asia Pacific Index fell 1.2%
- The MSCI Emerging Markets Index fell 0.9%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro rose 0.2% to $0.9923
- The Japanese yen fell 0.8% to 143.96 per dollar
- The offshore yuan fell 0.1% to 6.9787 per dollar
- The British pound was little changed at $1.1515
Bonds
- The yield on 10-year Treasuries declined three basis points to 3.31%
- Germany’s 10-year yield declined four basis points to 1.60%
- Britain’s 10-year yield declined five basis points to 3.05%
Commodities
- Brent crude fell 1% to $91.89 a barrel
- Spot gold rose 0.1% to $1,704.27 an ounce
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