Wall Street equity futures dropped and stocks in Europe fell as investors assessed hawkish comments from Federal Reserve officials and awaited remarks from Chairman Jerome Powell for clues on the trajectory of interest rates.
(Bloomberg) — Wall Street equity futures dropped and stocks in Europe fell as investors assessed hawkish comments from Federal Reserve officials and awaited remarks from Chairman Jerome Powell for clues on the trajectory of interest rates.
Contracts on the S&P 500 and Nasdaq 100 both fell by at least 0.5%. Richard Branson’s Virgin Orbit Holdings Inc. tumbled in US premarket trading after a failed attempt to send Britain’s first satellites into orbit from its own soil. The Stoxx Europe 600 Index retreated from an eight-month high as retail stocks led declines.
Treasury yields ticked higher, while the Bloomberg Dollar Spot Index rose.
Traders hoping for a quick end to aggressive rate hikes as global inflation slows had a reality check on Monday, when San Francisco Fed president Mary Daly said she expects the central bank to raise rates to somewhere over 5%. Her Atlanta counterpart Raphael Bostic said policy makers should hike above 5% by early in the second quarter and then go on hold for “a long time.” Powell speaks later at an event in Sweden.
“The same pattern keeps emerging, with investors clinging onto any data which appears to show the economy is cooling off, only to see their hopes dashed by policymakers who clearly believe the inflation-busting job is far from over,” said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.
Thursday’s US inflation report, which will come out almost a week after the latest jobs data showed wage growth has decelerated, will be among the last such readings Fed policy makers will see before their Jan. 31-Feb. 1 gathering.
“There has been increasing hope of a softish landing for the US economy – that hope could be punctured if the Fed retains a hard line on rates,” said Russ Mould, investment director at AJ Bell.
JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said the Fed’s rate hikes might need to go beyond what’s currently expected, but he’s in favor of a pause to see the full impact of last year’s increases.
There’s a 50% chance current expectations are correct in assuming the Fed will boost its benchmark rate to about 5%, and a 50% chance that the central bank will have to go to 6%, Dimon said in an interview aired Tuesday on Fox Business.
On the outlook for Europe, meanwhile, economists at Goldman Sachs said they no longer predict a euro-zone recession after the economy proved more resilient at the end of 2022, natural gas prices fell sharply and China abandoned Covid-19 restrictions earlier than anticipated.
Gross domestic product is now expected to increase 0.6% this year, compared with an earlier forecast for a contraction of 0.1%. Economists led by Jari Stehn warn in a report to clients of weak growth during the winter given the energy crisis, and say headline inflation will ease faster than thought, to about 3.25% by end-2023.
Key events this week:
- US wholesale inventories, Tuesday
- Fed Chair Jerome Powell among speakers at Riksbank symposium in Stockholm, Tuesday
- World Bank expected to release global economic prospects report, Tuesday
- ECB Governing Council members speak at Euromoney conference in Vienna, Wednesday
- US CPI, initial jobless claims, Thursday
- St Louis Fed President James Bullard at Wisconsin Bankers Association virtual event, Thursday
- Richmond Fed President Thomas Barkin speaks at VBA/VA Chamber, Thursday
- China trade, Friday
- US University of Michigan consumer sentiment, Friday
- Citigroup, JPMorgan Chase, Wells Fargo report earnings, Friday
This week’s MLIVE Pulse Survey:
Some of the main moves in markets:
Stocks
- S&P 500 futures fell 0.5% as of 8:28 a.m. New York time
- Nasdaq 100 futures fell 0.7%
- Futures on the Dow Jones Industrial Average fell 0.5%
- The Stoxx Europe 600 fell 0.8%
- The MSCI World index fell 0.2%
Currencies
- The Bloomberg Dollar Spot Index rose 0.2%
- The euro was little changed at $1.0720
- The British pound fell 0.4% to $1.2137
- The Japanese yen fell 0.3% to 132.29 per dollar
Cryptocurrencies
- Bitcoin rose 0.3% to $17,239.2
- Ether rose 0.7% to $1,327.89
Bonds
- The yield on 10-year Treasuries advanced five basis points to 3.59%
- Germany’s 10-year yield advanced six basis points to 2.28%
- Britain’s 10-year yield advanced six basis points to 3.58%
Commodities
- West Texas Intermediate crude rose 0.5% to $74.99 a barrel
- Gold futures were little changed
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Sagarika Jaisinghani and Tony Jordan.
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