(Bloomberg) — U.S. equity futures fell with Treasuries after a chorus of Federal Reserve officials reiterated their determination to continue raising interest rates and traders raised tightening bets on other major central banks.
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September contracts for the S&P 500 fell 0.7 percent after Thursday’s gains sent the stock benchmark on its longest streak of weekly gains since November. Technology stocks remained the underdog, with Nasdaq 100 futures down 1% on Friday. The yield on two-year government bonds rose 5 basis points. The dollar headed for its biggest weekly rally since June 10. Bed Bath & Beyond sank 42% in premarket trading in New York after a major investor sold its stake.
Two voting members of the Federal Open Market Committee — James Bullard of St. Louis and Esther George of Kansas City — stressed that the U.S. central bank will continue to raise interest rates until inflation returns to its target of 2 %. Although their views on Thursday differed on the amount of the Fed’s move in September, they dampened expectations that a string of weak economic data would encourage the Fed to dovetail.
“It’s obviously clear that the Federal Reserve’s primary objective is to reduce inflation, although it recognizes the potential risk of derailing the economy,” said Richard Hunter, head of markets at Interactive Investor International in Leeds, UK. “Comments from several Fed officials suggest there is still some way to go before a victory for taming inflation is declared.”
Non-voting officials also echoed the Fed’s hawkish stance. Mary Daly of San Francisco said officials would be in no rush to reverse course next year, rejecting bets to cut interest rates before the end of 2023. Neal Kashkari of Minneapolis said “we have an inflation problem right now” and that the central bank must take it down “urgently”.
Treasuries fell across the curve on Friday. Money markets raised central bank tightening bets, with a 40% chance of a 75-basis-point Fed hike in September and a 33% chance of a similar hike from the Bank of England, while a half-point hike by the European Central Bank is baking in.
Investors are now focusing on the Fed’s annual symposium in Jackson Hole, Wyoming, next week for further clues on the policy path. The latest data, suggesting a slowdown in activity, highlighted the growing impact of rising interest rates on the world’s largest economy. Economists see a 50% chance of a recession in the US and a 55% chance in the eurozone. Worsening sentiment is the Fed’s quantitative easing, which will accelerate to a $1 trillion annual pace next month.
The European Stoxx 600 fell on Friday with a rate of weekly decline. Real estate and travel and leisure stocks were the worst performers. Asian stocks fell, led by Chinese shares.
Bed Bath & Beyond fell to $10.75 in early New York trading, down from Thursday’s close of $18.55, after Ryan Cohen sold all of his stock at the retailer. Crypto-related stocks tumbled, tracking losses in bitcoin: Coinbase Global Inc., Marathon Digital Holdings and Riot Blockchain Inc. each fell by at least 5%.
The Bloomberg Dollar Spot Index was set for a 1.8% gain this week after advancing in five of the past six days. Geopolitical tensions have resurfaced, adding to the haven for greenbacks. Indonesian President Joko Widodo said China’s Xi Jinping and Russia’s Vladimir Putin plan to attend the G20 summit in Bali later this year. That sets up a showdown with US President Joe Biden and others as Russia continues its war in Ukraine.
Oil and gold fell. Later on Friday, $2 trillion worth of options expirations could cause volatility in global markets.
Inflation remains the most closely watched indicator in the second half of the year. Will it gradually decline or remain elevated, forcing the Fed to continue raising rates aggressively? Have your say in the anonymous MLIV Pulse survey.
Some of the major moves in the markets:
The Stoxx Europe 600 was down 0.5 percent as of 9:26 a.m. London time
S&P 500 futures fell 0.7%
Nasdaq 100 futures fell 1%
Dow Jones Industrial Average futures fell 0.5%
MSCI Asia Pacific Index fell 0.6%
MSCI Emerging Markets index fell 0.5%
The Bloomberg Dollar Spot index rose 0.3%
The euro was little changed at $1.0084
The Japanese yen fell 0.5 percent to 136.60 per dollar
The offshore yuan fell 0.3 percent to 6.8230 per dollar
The British pound fell 0.4% to $1.1886
The 10-year Treasury yield rose five basis points to 2.94%
Germany’s 10-year bond yield rose nine basis points to 1.19%
Britain’s 10-year bond yield advanced 10 basis points to 2.41%
Brent crude fell 1% to $95.66 a barrel
Spot gold fell 0.3% to $1,753.92 an ounce
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