Stocks dropped after the Federal Reserve signaled interest rates will be higher for longer and as traders awaited a Bank of England policy decision that hangs in the balance.
(Bloomberg) — Stocks dropped after the Federal Reserve signaled interest rates will be higher for longer and as traders awaited a Bank of England policy decision that hangs in the balance.
Europe’s Stoxx 600 Index fell 0.7%, with almost all industry groups in the red. Futures contracts for US benchmarks declined, extending Wednesday’s losses on Wall Street. A gauge of Asian stocks fell the most in more than a month. Treasuries were mostly lower, while the dollar strengthened.
The BOE announcement caps a busy day for European central bankers. The Swiss franc fell after the Swiss National Bank delivered a surprise hold. Sweden’s Riksbank increased its key rate as expected and said more hikes were possible, while Norway’s central bank said more tightening may come in December after raising rates as economists predicted.
The Fed on Wednesday held its target range, while updated quarterly projections showed most officials favored another rate hike in 2023. Policymakers also see less easing next year, with the median forecast for the federal funds rate at 5.1% by year-end, up from 4.6% when projections were last updated in June.
“People did expect a hawkish hold from the Fed, but it’s the extent of the hawkishness that surprised,” said Lee Hardman, a strategist at MUFG Bank Ltd. “We thought they may take one cut out of next year’s forecasts — instead they took two out. So it was much more hawkish than markets were pricing in.”
The pound weakened ahead of Thursday’s BOE policy decision. After UK inflation unexpectedly slowed, traders pared bets on further tightening steps by the central bank, with the market pricing a 50% chance of a quarter-point hike on Thursday. They are also betting that if the BOE does hike, it will be its last. Goldman Sachs and Nomura went further, saying rates have already peaked. Bloomberg Economics expects an increase.
“There is now a real possibility the BOE pauses its hiking cycle this month or, perhaps more likely, raises rates while sending a signal that it thinks the move will be the last of the cycle,” according to economists Dan Hanson and Ana Andrade.
Treasury yields were broadly higher after the two-year yield, which is more sensitive to imminent Fed moves, hit the highest since 2006 on Wednesday.
The dollar gained against most major currencies, but was flat against the yen, which traded around 148 per dollar after weakening on Wednesday to the lowest level since November.
There are heightened prospects of official support for the Japanese currency, said John Vail, chief global strategist for Nikko Asset Management Co. in Tokyo. “Japan’s Ministry of Finance is likely to intervene in large fashion at 150 per dollar because it is hard to tolerate more inflationary pressure.”
The value of the yen has slumped back to a 53-year low, as measured against a broad basket of its peers and adjusted for inflation, according to data from the Bank for International Settlements.
Japan is also where this week’s series of central bank policy meetings wraps up on Friday.
Read more: Traders on Intervention Watch With Dollar-Yen Near 150
Among individual stock moves Thursday, Next Plc outperformed in London after the UK retailer raised its forecast. FedEx Corp. climbed in US premarket trading after the courier raised the lower end of its outlook for EPS. ARM Holdings Plc fell, with the chip designer nearing its IPO price, as rising bond yields put pressure on growth stocks, with tech peers down too.
Elsewhere, oil’s breakneck rally is taking a breather as a smaller-than-expected drop in US crude stockpiles bolstered technical resistance to further gains.
Key events this week:
- Eurozone consumer confidence, Thursday
- Bank of England policy meeting, Thursday
- US leading index, initial jobless claims, existing home sales, Thursday
- China’s Bund Summit, Friday
- Japan CPI, PMIs, Friday
- Bank of Japan rate decision, Friday
- Eurozone S&P Global Eurozone PMIs, Friday
- US S&P Global Manufacturing PMI, Friday
Some of the main moves in markets:
Stocks
- The Stoxx Europe 600 fell 0.8% as of 9:42 a.m. London time
- S&P 500 futures fell 0.4%
- Nasdaq 100 futures fell 0.7%
- Futures on the Dow Jones Industrial Average fell 0.2%
- The MSCI Asia Pacific Index fell 1.5%
- The MSCI Emerging Markets Index fell 1.2%
Currencies
- The Bloomberg Dollar Spot Index rose 0.2%
- The euro was little changed at $1.0653
- The Japanese yen was little changed at 148.23 per dollar
- The offshore yuan was little changed at 7.3092 per dollar
- The British pound fell 0.3% to $1.2301
Cryptocurrencies
- Bitcoin fell 0.5% to $26,970.08
- Ether fell 0.3% to $1,619.41
Bonds
- The yield on 10-year Treasuries advanced two basis points to 4.43%
- Germany’s 10-year yield advanced four basis points to 2.74%
- Britain’s 10-year yield advanced four basis points to 4.25%
Commodities
- Brent crude fell 1.2% to $92.40 a barrel
- Spot gold fell 0.3% to $1,925.44 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Tassia Sipahutar and Richard Henderson.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.