Stocks and Treasuries weakened while the dollar gained Thursday after the Federal Reserve signaled interest rates will be higher for longer.
(Bloomberg) — Stocks and Treasuries weakened while the dollar gained Thursday after the Federal Reserve signaled interest rates will be higher for longer.
European equity futures fell around 1% while contracts for US benchmarks also slipped, extending Wednesday losses on Wall Street. In Asia, benchmarks across the region fell. A drop for the MSCI China Index placed the benchmark on track for its lowest closing level since November as pessimism persisted about the nation’s economic recovery.
Tech stocks in Hong Kong slid over 2%, echoing heavy selling in US tech names Wednesday. China’s beleaguered property developers were a bright spot, rising after new measures to ease home-buying rules.
Treasury yields inched higher after rising Wednesday when the two-year yield, which is more sensitive to imminent Fed moves, hit the highest since 2006.
The dollar rallied against major currencies, but was flat against the yen, which traded around 148 per dollar after weakening on Wednesday to the lowest level since November.
The Fed 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.
“The new projections suggest that the Fed has a fairly strong degree of confidence in its outlook for a soft landing and, in turn, that there will be very minimal space for policy easing next year,” said Seema Shah, chief global strategist at Principal Asset Management.
“The dot plot was more hawkish than expected,” said John Vail, chief global strategist for Nikko Asset Management Co. in Tokyo.
The stronger dollar added pressure on the yen, heightening the prospect of official support for the Japanese currency, Vail said. “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 pound weakened ahead of Thursday’s Bank of England 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.
Central banks in the Philippines and Indonesia are also set to announce policy decisions Thursday. The Phillippines central bank is likely to lift rates by a quarter point, while Indonesian policymakers are seen keeping rates on hold, according Bloomberg Economics.
The series of policy meetings this week will wrap up with the Bank of Japan on Friday.
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, with West Texas Intermediate’s futures dropping below $90 a barrel.
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
- S&P 500 futures fell 0.3% as of 6:55 a.m. London time. The S&P 500 fell 0.9%
- Nasdaq 100 futures fell 0.4%. The Nasdaq 100 fell 1.5%
- Japan’s Topix fell 0.9%
- Australia’s S&P/ASX 200 fell 1.3%
- Hong Kong’s Hang Seng fell 1.3%
- The Shanghai Composite fell 0.6%
- Euro Stoxx 50 futures fell 1%
Currencies
- The Bloomberg Dollar Spot Index rose 0.2%
- The euro fell 0.2% to $1.0637
- The Japanese yen was little changed at 148.35 per dollar
- The offshore yuan was little changed at 7.3095 per dollar
- The Australian dollar fell 0.6% to $0.6408
- The British pound fell 0.2% to $1.2321
Cryptocurrencies
- Bitcoin was little changed at $27,073.14
- Ether was little changed at $1,624.05
Bonds
- The yield on 10-year Treasuries advanced two basis points to 4.43%
- Japan’s 10-year yield advanced 2.5 basis points to 0.745%
- Australia’s 10-year yield advanced nine basis points to 4.31%
Commodities
- West Texas Intermediate crude fell 0.7% to $89.02 a barrel
- Spot gold was little changed
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Tassia Sipahutar.
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