Stocks Down for a Second Day as Fed Hawks Circle: Markets Wrap

(Bloomberg) — Stocks and U.S. Treasurys fell as Federal Reserve officials reaffirmed their determination to continue their fight against inflation and warned of more pain to come.

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The S&P 500 and the Nasdaq 100 fell for the second consecutive session. Commodities fell from oil to copper while the dollar snapped a two-day decline.

US 10-year Treasury yields rose after St. Louis Fed President James Bullard said policy makers should raise interest rates at least 5% to 5.25% to curb inflation. He also warned of more financial stress in the future.

With inflation only beginning to ease and a measure of US retail sales increasing at the fastest pace in eight months, Fed speakers have stressed in recent days that they need to move forward to quell price pressures. Bullard’s comments came a day after San Francisco Fed President Mary Daley said a pause in rate hikes was “off the table.” Minneapolis Federal Reserve Chairman Neel Kashkari echoed their hawkish rhetoric Thursday afternoon.

“What is important is that the Fed has been following the same playbook that it has now for a long time,” said Johan Grahn, head of ETFs at Allianz Investment Management. Fed Chairman Jerome Powell adamantly reiterates his hawkish stance to keep markets at bay, so a rally after weak inflation data wasn’t what central bank officials wanted to see, he said.

“It’s a game of chicken between the economy, the markets and the Fed right now,” Grahn said. “And I think most people would be wise to believe that the Fed might win in the end.”

On Thursday, new data showing weekly jobless claims came in below expectations adding to the strength in the labor market. US mortgage rates posted their biggest weekly decline since 1981, which briefly improved sentiment, although Freddie Mac’s chief economist said there was a long way to go for the housing market.

Read more: Bullard sets tone for Fed officials, signals will continue to be raised

A handful of earnings reports poured in after the markets closed on Thursday. Applied Materials Inc., the largest maker of chip making equipment, delivered a better-than-expected sales forecast for the current period. Meanwhile, Gap Inc jumped after its quarterly sales and profit beat Wall Street estimates.

Read more: Options trading history shows jitters ahead of $2 trillion OpEx

Meanwhile, policy makers at the European Central Bank are said to be considering a 50 basis point rate hike next month, indicating they are worried about the economy and pushing the euro lower.

The pound fell after Chancellor Jeremy Hunt outlined a £55 billion ($65 billion) package of tax hikes and spending cuts even as the economy slips into recession. Gilded returns rose.

Main events this week:

Some of the major movements in the markets:

Stores

  • The S&P 500 is down 0.3% as of 4 pm New York time

  • The Nasdaq 100 fell 0.2%.

  • The Dow Jones Industrial Average changed little

  • MSCI World Index fell 0.8%

currencies

  • The Bloomberg Spot Dollar Index rose 0.4%.

  • The euro fell 0.3 percent to $1.0368

  • The British pound fell 0.4 percent to $1.1863

  • The Japanese yen fell 0.5 percent to 140.19 per dollar

Digital currencies

  • Bitcoin rose 0.9% to $16,682.04

  • Ether fell 0.4% to $1,200.56

bonds

  • The yield on the 10-year Treasury note advanced eight basis points to 3.77%.

  • Germany’s 10-year yield advanced 2 basis points to 2.02%

  • The UK 10-year yield advanced five basis points to 3.20%.

goods

  • West Texas Intermediate crude fell 4.3 percent to $81.95 a barrel

  • Gold futures fell 0.7 percent to $1,763.50 an ounce

This story was produced with help from Bloomberg Automation.

— with assistance from Peyton Forte and Vildana Hajric.

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