(Bloomberg Opinion) — Stock markets around the world extended their losses Thursday as 10-year U.S. Treasuries topped 4% for the first time since November, a sign that warnings from the Federal Reserve of interest rates higher for longer are finally sinking.
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Europe’s Stoxx 600 stock index posted a loss of around 0.5% after euro zone inflation slowed less than expected and underlying price pressures rose to a new record, adding to pressure on the European Central Bank to further increase rates. US stock futures also fell, and contracts on the rate-sensitive Nasdaq underperformed after both it and the S&P 500 Index ended February with losses.
The focus now is on how much higher interest rates could be in the US and the eurozone, with swap markets now pricing in a Fed policy rate ceiling of 5.5% in September, and some they even bet on 6%. US 10-year yields, the main benchmark rate for the global cost of capital, rose 40 basis points in February and are consolidating their rise above 4%. ECB interest rates are now seen rising above 4% and benchmark German bond yields are trading at 2.75% after soaring around 75 basis points from a January low.
“We have upgraded our Fed terminal forecast to 5.75%, which is above what markets are pricing in; we believe the US economy is proving very resilient due to excess savings and a labor market solid,” Thomas Hempell, head of macroeconomic and market research at Generali Investments, said in an interview. “The data has poured cold water on the disinflation process and markets are very alert to anything that upsets the inflation outlook.”
That is dampening the appetite for risk-taking in markets around the world, with some even raising concerns that China’s post-Covid economic recovery could exacerbate global price pressures.
China’s reopening is a much-needed bright spot for investors, but in terms of inflation it “adds cyclical upward pressure because of the sheer amount of demand” it generates, especially for commodities, said Charu Chanana, a senior markets strategist at Saxo Capital Markets. on Bloomberg Television.
Aggressive Fed rate bets supported the US dollar against its G-10 counterparts, and the greenback looks set to extend February’s 2.6% gain.
Oil eased slightly after a two-day gain as traders weighed a possible pick-up in Chinese demand against concerns about tightening US monetary policy.
Some of the main movements in the markets:
Stocks
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The Stoxx Europe 600 fell 0.4% at 10:18 a.m. London time
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S&P 500 futures fell 0.6%
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Nasdaq 100 futures fell 0.8%
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Dow Jones Industrial Average futures were little changed
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The MSCI Asia Pacific Index fell 0.4%
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The MSCI Emerging Markets Index fell 0.3%
coins
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The Bloomberg Dollar Spot Index rose 0.3%
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The euro fell 0.4% to $1.0622
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The Japanese yen fell 0.3% to 136.54 per dollar
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The offshore yuan fell 0.4% to 6.9051 per dollar
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The British pound fell 0.5% to $1.1967
CRYPTOCURRENCIES
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Bitcoin fell 0.7% to $23,396.65
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Ether fell 1% to $1,641.16
Captivity
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The 10-year Treasury yield rose four basis points to 4.04%.
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Germany’s 10-year yield rose four basis points to 2.75%.
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The UK 10-year yield rose two basis points to 3.86%.
raw Materials
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Brent crude rose 0.4% to $84.62 a barrel
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Spot gold fell 0.3% to $1,831.59 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Rheaa Rao, Tassia Sipahutar, and Brett Miller.
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