Stocks fell Friday and sovereign bonds struggled as the prospect of one of the most aggressive Federal Reserve monetary tightening cycles in recent history sowed more market discontent.
An Asian share gauge slid to a more than one-month low, sapped by Japan. European futures were in the red, while S&P 500 and Nasdaq 100 contracts wavered — but they were all off session lows. US stocks shed 1.5% Thursday.
China’s equity bourses eked out a gain amid economy-sapping Covid lockdowns. Its securities watchdog urged institutional investors to buy more domestic shares, part of a vow of market stability from Beijing that has so far failed to deliver a durable boost to sentiment.
Shorter maturities paced a retreat in Treasuries on the prospect of three consecutive half-point Fed interest-rate hikes, which would be the sharpest tightening since 1982. Fed Chair Jerome Powell signaled increases of such increments are possible and favored the idea of “front-end loading” moves.
A portion of the Treasury yield curve inverted again. That may indicate worries about whether the Fed’s campaign against price pressures — which have been stoked in part by Russia’s war in Ukraine — will tip the world’s largest economy into a downturn. Bonds in Australia and New Zealand declined.
Central bankers are stepping up efforts to quell some of the highest inflation in a generation. That shift is sapping investor sentiment, stoking market volatility and eclipsing a robust start to the corporate earnings season.
“Equities are really torn between these two forces right now and the first one is that earnings are actually pretty good,” Anastasia Amoroso, chief investment strategist at iCapital Securities LLC, said on Bloomberg Television. But “anytime equities rally it seems like the Fed officials are coming in with more and more hawkish talk,” she said.
About 80% of US firms reporting earnings so far beat estimates. Tesla Inc. was among them, gaining on record profits. Separately, Tesla Chief Executive Officer Elon Musk is also lining up financing for his Twitter Inc. takeover bid.
Traders have ramped up bets on Fed hikes, but there could be further to go: Nomura Holdings Inc. now expects the Fed to raise rates by 75 basis points at both its June and July meetings, following a 50 basis point hike in May.
“The unknown is Powell’s ability to deliver the needed finesse without completely derailing the recovery, while not falling short of the required magnitude to anchor inflation,” Ian Lyngen, head of interest rate strategy at BMO Capital Markets, wrote in a note.
Elsewhere, the yen strengthened against the dollar on a report that Japanese Finance Minister Shunichi Suzuki and US Treasury Secretary Janet Yellen discussed the possibility of coordinated currency intervention.
Oil dipped toward $102 a barrel. Energy costs are still elevated due to the supply challenges emanating from the Ukraine conflict, but on the flip side slowing US and Chinese growth could curb demand.
What to watch this week:
- Manufacturing PMIs: Euro area, France, Germany, UK, Friday
Some of the main moves in markets:
- S&P 500 futures fell 0.2% as of 7:20 a.m. in London. The S&P 500 fell 1.5%
- Nasdaq 100 futures fell 0.2%. The Nasdaq 100 fell 2%
- Japan’s Topix index shed 1.2%
- Australia’s S&P/ASX 200 index lost 1.6%
- South Korea’s Kospi fell 0.8%
- China’s Shanghai Composite index increased 0.4%
- Hong Kong’s Hang Seng index retreated 0.3%
- Euro Stoxx 50 futures fell 1.7%
- The Bloomberg Dollar Spot Index was flat
- The euro was at $1.0847, up 0.1%
- The Japanese yen was at 127.91 per dollar, up 0.4%
- The offshore yuan was at 6.4907 per dollar, down 0.2%
- The yield on 10-year Treasuries advanced two basis points to 2.93%
- Australia’s 10-year bond yield climbed five basis points to 3.13%
- West Texas Intermediate crude was at $102.32 a barrel, down 1.4%
- Gold was at $1 954.58 per ounce, up 0.2%