Equities Decline as Hawkish Fed Halts Global Rally: Markets Wrap

US equities and European stocks declined after the Federal Reserve rebuffed expectations for a dovish tilt and said interest rates will go higher for longer. The European Central Bank’s signals on consumer-price pressures deepened the selloff.

Contracts on the S&P 500 and Nasdaq 100 gauges fell at least 1.2% each. Demand for haven assets sent the dollar and Swiss franc higher amid a wave of rate hikes from Taiwan to Norway. The euro trimmed losses as the ECB saw 2024 inflation higher than previsouly forecast. Britain’s pound slid after an expected half-point rate hike. Tesla Inc. dropped in premarket New York trading after Elon Musk sold shares.

A global rally sparked by softer-than-forecast US inflation came to an abrupt halt on Wednesday after policymakers signaled a peak rate that was far above market expectations and sought to dispel hopes for a rate cut next year. Chair Jerome Powell reaffirmed the central bank won’t back away from its fight against inflation despite mounting fears of job losses and a recession.

“The Fed was more hawkish than markets had expected,” Jack McIntyre, a money manager at Brandywine Global Investment Management, wrote in a note. “They seemingly still want financial markets to tighten further, which essentially means they want lower equity prices.”

An index of the dollar’s strength headed for the biggest gain since Dec. 5. The euro fell from a six-month high, but pared some losses, as the ECB’s rate hike was accompanied by higher inflation projection that signaled monetary tightening could intensify. The pound extended its losses after policymakers in London delivered an expected hike, but growing divisions were noted in their decision.

The Swiss franc held its gain after the nation’s central bank doubled the policy rate to 1% as forecast. China’s yuan fell as poor economic data and a surge in Covid cases weighed.

Europe’s equity benchmark, the Stoxx 600, fell the most since September on a closing basis. Tesla dropped 2.7% in early New York trading after Chief Executive Officer Musk sold almost 22 million shares of the electric-car maker for $3.58 billion. Western Digital Corp. lost 5.3% as Goldman Sachs Group Inc. recommended selling the stock. Netflix Inc. retreated 5%.

Treasury yields rose, with the two-year rate adding 4 basis points. The 10-year rate was also 4 basis points higher after the ECB’s inflation messaging.

Oil fluctuated between gains and losses after rallying almost 9% over the previous three sessions as TC Energy Corp. restarted a section of the Keystone pipeline, allowing for some flows to resume on the major conduit.

Key events this week:

• ECB rate decision and ECB President Lagarde briefing, Thursday
• Rate decisions for UK BOE, Mexico, Norway, Philippines, Switzerland, Taiwan, Thursday
• US cross-border investment, business inventories, empire manufacturing, retail sales, initial jobless claims, industrial production, Thursday
• Eurozone S&P Global PMI, CPI, Friday

Some of the main moves in markets:

Stocks

• Futures on the S&P 500 fell 1.2% as of 8:20 a.m. New York time
• Futures on the Nasdaq 100 fell 1.5%
• Futures on the Dow Jones Industrial Average fell 1%
• The Stoxx Europe 600 fell 1.4%
• The MSCI World index fell 0.5%

Currencies

• The Bloomberg Dollar Spot Index rose 0.6%
• The euro fell 0.4% to $1.0643
• The British pound fell 0.9% to $1.2308
• The Japanese yen fell 0.8% to 136.62 per dollar

Cryptocurrencies

• Bitcoin fell 1.6% to $17,544.05
• Ether fell 2.7% to $1,275.9

Bonds

• The yield on 10-year Treasuries advanced three basis points to 3.50%
• Germany’s 10-year yield advanced eight basis points to 2.02%
• Britain’s 10-year yield declined six basis points to 3.26%

Commodities

• West Texas Intermediate crude was little changed
• Gold futures fell 1.7% to $1,787 an ounce

Source