Sell-off deepens as BOE in focus after Fed warning: Markets overview

(Bloomberg) — Stocks and bonds fell as Jerome Powell’s warning that the Federal Reserve will raise interest rates more than previously expected dampened risk appetite. The pound pared losses after the Bank of England raised its key interest rate to 3%.

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S&P 500 futures fell 0.7 percent after a 2.5 percent drop on Wednesday. The sell-off has spread to Europe and Asia, where China’s assertion of a Covid-Zero stance has dampened hopes for a reopening. Lumen Technologies Inc., Peloton Interactive Inc., Moderna Inc. and Qualcomm Inc. fell in premarket trading, while Etsy Inc. and eBay Inc. rose.

The BOE followed the Fed’s 75 basis point hike with an equivalent hike on Thursday and said it sees a two-year recession if rates follow the market curve. Powell disappointed pivot traders as the US economy remained resilient to stubbornly high inflation.

“Every time the market gets a little bit of dovish hope, it gets punched in the nose with a rolled-up newspaper,” said Scott Rundell, chief investment officer at Mutual Ltd. “There’s still a lot of volatility.”

Investors are concerned about the impact of central bank tightening on economic growth, and Powell has left no doubt that he is prepared to raise rates as high as necessary to quell inflation. The chances of a US recession are increasing, and the chances of a mild one are decreasing.

Separately, European Central Bank President Christine Lagarde warned on Thursday that a “mild recession” was possible, but that alone would not be enough to stem the price surge.

The dollar gained as investors looked to US jobs data, which could help set the pace of upcoming rate hikes. The Norwegian krone fell after its central bank made the smallest increase in its benchmark interest rate since June.

“There is probably some profit in dollar long positions after the big moves after the FOMC meeting results and Powell’s press conference,” said David Forrester, senior currency strategist at Credit Agricole CIB in Hong Kong.

Global bonds fell on Thursday after the Fed meeting. The two-year Treasury yield rose to 4.7%, but was still below the peak of 5.06% in the yield estimated in Fed funds futures. Two-year gilt yields fell.

“Taking into account the valuation of the bond market, markets are becoming increasingly convinced that the path to the bottom rate will include a recession,” said Quincy Crosby, chief global strategist at LPL Financial.

Wheat prices fell after Russia agreed to renew a deal allowing safe passage of Ukrainian crop exports. Oil fell after Powell’s interest rate comments overshadowed supply tightening.

Elsewhere, Pakistan’s former prime minister Imran Khan was wounded and taken to safety after shots were fired at his rally in the eastern province of Punjab, his spokesman said.

Key events this week:

  • Bank of England rate decision Thursday

  • US Factory Orders, Durable Goods, Trade, Initial Jobless Claims, ISM Services Index, Thursday

  • US non-farm payrolls, unemployment, Friday

Some of the major moves in the markets:

Stock up

  • S&P 500 futures were down 0.7% at 8:15 a.m. in New York

  • Nasdaq 100 futures fell 0.9%

  • Dow Jones Industrial Average futures fell 0.5%

  • Stoxx Europe 600 down 1.3%

  • MSCI World index fell 1.6%

Currencies

  • The Bloomberg Dollar Spot index rose 0.6%

  • The euro fell 0.6% to $0.9756

  • The British pound fell 1.4% to $1.1236

  • The Japanese yen fell 0.2 percent to 148.17 per dollar

Cryptocurrencies

  • Bitcoin fell 0.2% to $20,141.35

  • Ether rose 1.6% to $1,535.79

Bonds

  • The 10-year Treasury yield rose seven basis points to 4.17%

  • Germany’s 10-year bond yield rose 11 basis points to 2.25%

  • Britain’s 10-year bond yield advanced 11 basis points to 3.51%

Goods

  • West Texas Intermediate crude fell 1% to $89.09 a barrel

  • Gold futures fell 1.6% to $1,623.50 an ounce

–With help from Richard Henderson.

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