(Bloomberg Opinion) — Global stock markets struggled Wednesday after comments from Federal Reserve Chairman Jerome Powell buoyed bets on interest rates, lifted Treasury yields and revived fears. that the world’s largest economy will not be able to avoid a recession.
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Europe’s benchmark Stoxx 600 equity index opened 0.3% weaker, after a gauge of Asian stocks fell more than 1%, with losses driven mainly by commodity stocks. US stock futures traded flat after the underlying S&P 500 and Nasdaq indices posted their biggest losses in two weeks. As the dollar extended the previous day’s 1% gain, oil prices lost more ground after falling 3.6% on Tuesday.
Money markets are now pricing in US interest rates rising above 5.6% later this year after Powell signaled he was willing to accelerate policy tightening should inflation break. would stay high. That pushed the rate-sensitive two-year Treasury yield past 5% for the first time since 2007, raising its premium on 10-year rates to a full percentage point for the first time since 1981, a level that, according to Deutsche Bank strategists, indicates a recession. within a maximum period of eight months.
“We would be reckless to expect that we can’t hit 6% Fed rates, and clearly that has an impact on asset markets around the world,” Rabobank strategist Jane Foley told Bloomberg Television. If the Fed has to work harder to reduce inflation, “that certainly implies a recession,” she added.
Read more: Deepest bond yield reversal since Volcker suggests hard landing
Read more: Global investors contemplate consequences of US rates reaching 6%
As chances of a 50 basis point move increased at the March 21-22 Fed meeting, analysts at Goldman Sachs added a July Fed hike to their forecasts. Rates are also revaluing higher elsewhere, with bets on the Bank of England rising as much as 5% on Wednesday, while the European Central Bank is now trading an additional 150 basis points of adjustment.
The pain is hitting emerging markets, with MSCI’s emerging stock gauge shedding as much as 1.6%, while a drop in China’s yuan prompted the central bank to signal its intention to support the currency.
Rabobank’s Foley pointed out that the rising dollar, which is near its highest levels this year, would trickle down to emerging economies which may be forced to raise interest rates further. “That gives the impression that global growth will slow down as well,” he said.
Powell speaks before Congress again later in the day, although the next highlight will be Friday’s February jobs data. Payroll growth has beaten estimates for 10 straight months in the longest streak in decades, a trend that, if prolonged, will increase pressure on the Fed to keep raising interest rates.
Key events this week:
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Euro area GDP, Wednesday
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US MBA Mortgage Applications, ADP Job Change, Trade Balance, JOLTS Job Postings, Wednesday
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Fed Chairman Powell’s semiannual monetary policy report to the House Financial Services Committee, Wednesday
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Canada rate decision, Wednesday
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EIA crude oil inventories, Wednesday
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China CPI, PPI, Thursday
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US Challenger Job Cuts, Initial Jobless Claims, Change in Household Net Worth, Thursday
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Bank of Japan Rate Policy Decision, Friday
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US Nonfarm Payrolls, Unemployment Rate, Monthly Budget Statement, Friday
Some of the main movements in the markets:
Stocks
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S&P 500 futures were little changed at 3:22 a.m. New York time
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Nasdaq 100 futures were little changed
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Dow Jones Industrial Average futures were little changed
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The Stoxx Europe 600 fell 0.2%
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The MSCI World Index fell 0.3%
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S&P 500 futures were little changed
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Nasdaq 100 futures were little changed
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The MSCI Asia Pacific Index fell 1.1%
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The MSCI Emerging Markets Index fell 1.4%
coins
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The Bloomberg Dollar Spot Index was little changed
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The euro was little changed at $1.0544
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The British pound was little changed at $1.1827
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The Japanese yen fell 0.2% to 137.49 per dollar
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The offshore yuan rose 0.2% to 6.9803 per dollar
CRYPTOCURRENCIES
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Bitcoin fell 0.3% to $21,981.15
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Ether was little changed at $1,551.72
Captivity
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The 10-year Treasury yield rose two basis points to 3.98%.
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Germany’s 10-year yield was little changed at 2.70%
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The UK 10-year yield rose two basis points to 3.84%.
raw Materials
This story was produced with the assistance of Bloomberg Automation.
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