The dollar rallied and stocks dropped alongside US equity futures with expectations of steeper rate hikes growing after hawkish comments from Federal Reserve and European Central Bank officials.
(Bloomberg) — The dollar rallied and stocks dropped alongside US equity futures with expectations of steeper rate hikes growing after hawkish comments from Federal Reserve and European Central Bank officials.
The Bloomberg dollar gauge rose as much as 0.6%, erasing its losses for the year, while benchmark Treasury yields climbed for a fourth day. Yields on two-year and 10-year Treasuries are both at their highs for 2023. Data on Thursday showed that US producer prices rebounded in January by the most since June.
Europe’s Stoxx 600 index fell 0.9%, with the rates-sensitive technology sector leading declines. Natwest Group Plc slumped after the British lender reported higher costs and guided for profit below some analysts’ expectations. Contracts for both the S&P 500 and Nasdaq 100 retreated after the underlying indexes sank more than 1% on Thursday.
Federal Reserve Bank of Cleveland President Loretta Mester said she had seen a “compelling economic case” for rolling out another 50 basis-point hike, and St. Louis President James Bullard said he would not rule out supporting a half-percentage-point increase at the March meeting. While Mester and Bullard participate in deliberations, they do not vote on monetary policy decisions this year.
The market has been “a little bit too sanguine” so far this year concerning any imminent Fed pivot, according to Helen Zhu, chief investment officer at Hong Kong-based Nan Fung Trinity.
“We don’t necessarily think there’s going to be a 50-basis-point rate hike at this next Fed meeting, but we do think that the expectations for a lot of cuts in the second half of this year are probably overdone,” Zhu said on Bloomberg Television.
Investors have been upping their bets on how far the Fed will raise rates this tightening cycle. They now see the federal funds rate climbing past 5.2% in July, according to trading in the US money markets. That compares with a perceived peak rate of 4.9% just two weeks ago.
Rate-hike expectations are also rising in Europe. Isabel Schnabel, an Executive Board member of the European Central Bank, said investors risk underestimating the persistence of inflation, and the response needed to bring it under control. “We are still far away from claiming victory,” she said in an interview with Bloomberg, citing the strength of underlying price pressures and faster wage increases.
Money markets bolstered ECB rate-hike bets after Schnabel’s remarks, pricing a 3.72% peak in the deposit rate by the end of the third quarter and almost removing all wagers on cuts in 2023.
An Asian stock benchmark was set for a third straight weekly slide, the worst such run of losses since October. China Renaissance Holdings Ltd. fell as much as 50% in Hong Kong, the most ever, after saying that it was unable to contact Bao Fan, chairman, chief executive officer and controlling shareholder of the Chinese investment bank.
Bitcoin retreated after three days of gains that were fueled by easing fears of a US regulatory crackdown.
In commodities, oil headed for a weekly drop as rising US inventories and the prospect of further tightening by the Federal Reserve eclipsed the lift from more signs that Chinese energy demand is improving. Gold fell.
Some of the main moves in markets:
Stocks
- The Stoxx Europe 600 fell 0.9% as of 9:10 a.m. London time
- S&P 500 futures fell 0.7%
- Nasdaq 100 futures fell 0.9%
- Futures on the Dow Jones Industrial Average fell 0.5%
- The MSCI Asia Pacific Index fell 1.3%
- The MSCI Emerging Markets Index fell 1.2%
Currencies
- The Bloomberg Dollar Spot Index rose 0.5%
- The euro fell 0.3% to $1.0644
- The Japanese yen fell 0.7% to 134.91 per dollar
- The offshore yuan fell 0.4% to 6.8948 per dollar
- The British pound fell 0.5% to $1.1929
Cryptocurrencies
- Bitcoin fell 3.1% to $23,784.35
- Ether fell 1% to $1,666.55
Bonds
- The yield on 10-year Treasuries advanced five basis points to 3.91%
- Germany’s 10-year yield advanced eight basis points to 2.55%
- Britain’s 10-year yield advanced eight basis points to 3.58%
Commodities
- Brent crude fell 1.8% to $83.57 a barrel
- Spot gold fell 0.9% to $1,820.32 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Beth Thomas.
More stories like this are available on bloomberg.com
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