Stocks struggled at the end of a week that saw a pick-up in bets that the Federal Reserve will keep its policy tighter for longer.
(Bloomberg) — Stocks struggled at the end of a week that saw a pick-up in bets that the Federal Reserve will keep its policy tighter for longer.
Traders who had been positioning for the central bank to finish its tightening cycle to prevent a harsher economic landing didn’t get any reassurance from the Fed in the past few days. It’s not like officials turned more hawkish, but they certainly conveyed the message that more interest-rate hikes could be on the way to rein in persistent inflation.
And investors heard that. More equity losses on Friday put the S&P 500 on track to halt a two-week rally. The decline has also been attributed to the fact that stocks have enjoyed a powerful rally from their October lows, being prone to profit-taking. Another rise in Treasury yields weighed on the tech space, with the Nasdaq 100 underperforming major equity benchmarks.
“Sentiment has been hurt by realization that the Fed might go further in hiking interest rates than previously expected, after last Friday’s jobs report was accompanied by hawkish commentary from several Fed officials,” said Fawad Razaqzada, market analyst at City Index and Forex.com. “In addition, it is also possible that investors are concerned about valuations again after the sizeable recovery from the October lows.”
Next week’s US inflation data will mark a turning point for this year’s equity rally at a time when investors are swapping stocks for bonds amid the specter of a recession, according to Bank of America Corp. strategists.
Global equity funds had outflows of $7.4 billion in the week through Feb. 8, according to a note from the bank that cited EPFR Global data. Cash funds also saw redemptions at $10.1 billion, while $7.4 billion entered bonds.
On the economic front, US consumer sentiment climbed to a more than one-year high in early February as more upbeat views of current conditions outweighed lingering concerns about the outlook.
In corporate news, Lyft Inc. headed for its biggest single-day decline ever after forecasting dramatically lower profits than expected and saying it will cut prices in an attempt to attract and keep customers. Expedia Group Inc. executives gave an optimistic outlook for travel demand in the current quarter, reassuring investors after the company’s fourth-quarter results were weaker than expected.
Elsewhere, oil gained as Russia plans to cut its oil output by 500,000 barrels a day next month, following through on a threat to retaliate against western energy sanctions and sending oil prices sharply higher.
The yen strengthened as much as 1.4% against the dollar after news reports that Kazuo Ueda would be picked to become the Bank of Japan’s next governor. Investors initially interpreted the decision as likely a hawkish choice. Those gains were trimmed after Ueda spoke to reporters and said the BOJ’s stimulus should stay in place.
“Why do we care? Because the BOJ is locked into ultra-dovish policy,” said Chris Low at FHN Financial. “It is the only major central bank fighting to keep inflation high rather than trying to lower it. Now we’ll have to see how long he sticks to the old policy.”
Some of the main moves in markets:
Stocks
- The S&P 500 fell 0.2% as of 10:58 a.m. New York time
- The Nasdaq 100 fell 0.7%
- The Dow Jones Industrial Average was little changed
- The Stoxx Europe 600 fell 1.1%
- The MSCI World index fell 0.6%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro fell 0.6% to $1.0677
- The British pound fell 0.4% to $1.2074
- The Japanese yen rose 0.2% to 131.30 per dollar
Cryptocurrencies
- Bitcoin fell 1% to $21,648.03
- Ether fell 1.2% to $1,522.13
Bonds
- The yield on 10-year Treasuries advanced six basis points to 3.72%
- Germany’s 10-year yield advanced seven basis points to 2.37%
- Britain’s 10-year yield advanced 10 basis points to 3.39%
Commodities
- West Texas Intermediate crude rose 1.8% to $79.43 a barrel
- Gold futures fell 0.4% to $1,871.70 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Vildana Hajric.
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