Stocks Fall As Tight Central Banks Drain Lives: Markets Wrapped

(Bloomberg) — Stocks fell along with US stock futures as tightening policy concerns from the United States to Norway to the United Kingdom impeded the market’s upward movement.

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All industry sub-sectors fell into the red in Europe, with the region’s main stock gauge dropping 1%, extending the decline into a fourth day. Contracts for the S&P 500 and Nasdaq 100 pointed lower after a Wall Street sell-off on hawkish warnings from Federal Reserve Chairman Jerome Powell in congressional testimony.

Their battle with inflation was far from over, central banks around the world whipping up more rate hikes and frustrating bets that the tightening cycles were about to end. That has prompted investors to rethink the animal spirits unleashed by last week’s Federal Reserve interest rate pause.

“It could be argued that recessionary risks are higher if rates have been higher for longer, but risky assets do not reflect that,” said Janet Moye, head of market analysis at RBC Bruin Dolphin. “Markets are re-evaluating whether more risk is warranted after the year-to-date rally.”

In the US, fears of a hard landing re-established themselves amid the prospect of policy tightening, prompting an inversion of a key portion of the Treasury yield curve to a full percentage point for the first time since March.

Powell stressed the need to rein in inflation during his semi-annual report to Congress on Wednesday, saying that two more rate hikes this year was a “good guess.” His warning came ahead of Thursday’s policy meetings in England, Switzerland, Norway and Turkey.

The Bank of England is under pressure to contain inflation after a report showed it rose 8.7%, higher than expected, for a fourth month. Money market pricing now indicates that the BoE benchmark will reach 6% by the end of the year, the highest level since the turn of the century.

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Norway’s central bank raised its main deposit rate by 50 basis points to 3.75%, the 11th rise in its benchmark since September 2021. Officials said the rate is “likely to hike further in August” and expect the rate to peak at 4.25% later. year.

“We are seeing growing concerns that central banks will consider concerns about slowing economic activity and prioritize the battle against inflation, treating a potential recession as a necessary side effect of their willingness to push inflation back,” said Michael Hewson. , Senior Market Analyst at CMC Markets UK.

By contrast, the Swiss National Bank made its lowest rate hike since it began tightening monetary policy a year ago, raising its key rate by a quarter point to 1.75%. Swiss inflation is the slowest of any developed economy.

Main events this week:

• Eurozone Consumer Confidence, Thursday

• Price decisions in the UK, Switzerland, Indonesia, Norway, Mexico, the Philippines and Turkey on Thursday

• The leading indicator of the US Congressional Council, Initial Jobless Claims, Current Account, Existing Home Sales, Thursday

• Fed’s Powell testifies before the Senate Banking Committee, Thursday

• Cleveland Federal Reserve’s Loretta Mester speaks on Thursday

• Eurozone S&P Global Eurozone Manufacturing PMI, S&P Global Eurozone Services PMI, Friday

• Japanese CPI, Friday

• Standard & Poor’s Global Manufacturing Index in the US, Friday

• St. Louis Federal Reserve Chairman James Bullard speaks on Friday

Some of the major movements in the markets:

Stores

• The Stoxx Europe 600 is down 1% as of 10:30 a.m. London time.

• S&P 500 futures fell 0.2%

• The Nasdaq 100 fell 0.3%.

• Futures on the Dow Jones Industrial Average fell 0.2%.

• The MSCI Asia Pacific Index fell 0.2%.

• The MSCI Emerging Markets Index fell 0.1%.

currencies

• The Bloomberg Spot Dollar Index has not changed

• The euro rose 0.1 percent to $1.0998

• The Japanese yen was little changed at 141.91 per dollar

• The external yuan was little changed at 7.1812 per dollar

• The British pound has not changed much at $1.2776

Digital currencies

• Bitcoin rose 0.6% to $30,153.68

• Ether rose 1.6% to $1,909.34

bonds

• The yield on the 10-year Treasury note advanced three basis points to 3.75%.

• Germany’s 10-year yield advanced 1 basis point to 2.44%

• The yield on the 10-year UK Bund advanced 1 basis point to 4.42%.

goods

• Brent crude fell 1.1 percent to $76.27 a barrel

• Spot gold fell 0.2 percent to $1928.39 an ounce

This story was produced with help from Bloomberg Automation.

– With assistance from Garfield Reynolds, Ksenia Galushko and Richard Henderson.

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