Stocks dropped as global markets responded to more hawkish-than-expected commentary from Federal Reserve policymakers that signaled further interest rate increases this year to tame inflation.
(Bloomberg) — Stocks dropped as global markets responded to more hawkish-than-expected commentary from Federal Reserve policymakers that signaled further interest rate increases this year to tame inflation.
European stocks declined across all industries as the regional benchmark index fell the most in two weeks, with consumer product, leisure and banking names among the biggest laggards. Futures contracts for the S&P 500 pointed to a continuation of Wednesday’s losses on Wall Street. In Asia, the Hang Seng Index tumbled as much as 3.3% benchmarks in Japan and Australia fell more than 1%.
Minutes from the June Fed meeting showed division among policymakers over the decision to pause rate hikes, with the voting members on track to take rates higher this month. Traders are also looking ahead to US jobs data due Thursday and Friday that will further illuminate the path for policy.
“It’s very difficult for the Fed to be pivoting anytime soon,” said Sue Trinh, co-head of global macro strategy for Manulife Investment Management, on Bloomberg Television. Prior pivots have occurred with core inflation around half current levels, suggesting more tightening ahead, she said. “We are positioned somewhat more defensively in the shorter term.”
Equities Face Increased Competition From Bonds: Taking Stock
A series of US employment reports loom large for investors. The so-called JOLTS report of job openings is expected to show a tapering of available positions and a separate measure of jobless claims is anticipated to tick higher, in a sign of cooling in the labor market. After that, attention turns to Friday’s closely watched monthly nonfarm payrolls report.
Treasury yields rose across the curve, adding to gains on Wednesday spurred by the Fed minutes. The policy sensitive two-year rate inched up to 4.96%.
Meanwhile, Treasury Secretary Janet Yellen touches down in Beijing Thursday to attempt to further repair the relationship between the world’s two largest economies.
Elsewhere in China, the central bank extended support for the yuan via a stronger daily reference rate, a day after its flagship newspaper published commentary stating that the country has ample tools to stabilize the weakening currency. Other efforts to shore up the yuan included a decision among China’s largest banks to reduce rates on the country’s $453 billion in corporate US dollar deposits — the second cut in a matter of weeks.
Chinese investors don’t expect policymakers to unveil aggressive stimulus or big economic reforms at a key meeting expected later this month, according to Goldman Sachs Group Inc. Traders have been hoping for more after a slew of disappointing data.
“Our base case is a weak stimulus,” Bank of America Corp. strategists including Winnie Wu wrote in a note. “We believe the government will need to send clearer signals to support the economy and private sectors, to help rebuild confidence.”
Key Events This Week:
- US initial jobless claims, trade, ISM services, job openings, Thursday
- Dallas Fed President Lorie Logan speaks on a panel about the policy challenges for central banks at CEBRA meeting, Thursday
- US unemployment rate, nonfarm payrolls, Friday
- ECB’s Christine Lagarde addresses an event in France, Friday
Some of the main moves in markets today:
Stocks
- The Stoxx Europe 600 fell 0.9% as of 8:07 a.m. London time
- S&P 500 futures fell 0.4%
- Nasdaq 100 futures fell 0.5%
- Futures on the Dow Jones Industrial Average fell 0.4%
- The MSCI Asia Pacific Index fell 1.3%
- The MSCI Emerging Markets Index fell 1.3%
Currencies
- The Bloomberg Dollar Spot Index fell 0.1%
- The euro was little changed at $1.0863
- The Japanese yen rose 0.6% to 143.78 per dollar
- The offshore yuan was little changed at 7.2574 per dollar
- The British pound was little changed at $1.2708
Cryptocurrencies
- Bitcoin rose 0.9% to $30,735.06
- Ether rose 0.8% to $1,925.43
Bonds
- The yield on 10-year Treasuries advanced two basis points to 3.96%
- Germany’s 10-year yield advanced four basis points to 2.52%
- Britain’s 10-year yield advanced three basis points to 4.52%
Commodities
- Brent crude fell 0.2% to $76.46 a barrel
- Spot gold rose 0.3% to $1,920.15 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Isabelle Lee and Emily Graffeo.
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