(Bloomberg) — European stocks fell along with U.S. stock futures, with expectations for steeper rate hikes following aggressive comments from Federal Reserve and European Central Bank officials. The dollar went up.
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Rate-sensitive technology stocks led falls in Europe’s Stoxx 600 Index. Natwest Group Plc slumped after the British lender’s guidance disappointed some investors. Contracts for both the S&P 500 and Nasdaq 100 fell back after the underlying indices sank more than 1% on Thursday. DoorDash Inc. jumped in premarket trading as results for the food delivery company showed resilient demand. Moderna Inc. fell after mixed results from a flu vaccine candidate.
Bloomberg’s dollar gauge rose as much as 0.6%, erasing its losses for the year, while benchmark Treasury yields rose for a fourth day. Two-year and 10-year Treasury yields are at their highest for 2023. Data on Thursday showed US producer prices rebounded in January to the most since June.
Cleveland Federal Reserve Bank President Loretta Mester said she had seen a “compelling economic case” for implementing another 50 basis point increase, and St. Louis President James Bullard said he would not rule out supporting a half a percentage point increase at the March meeting. Isabel Schnabel, a member of the Executive Board of the European Central Bank, warned that markets risk underestimating inflation.
The market has been “a bit overly optimistic” so far this year regarding any impending Fed turnaround, according to Helen Zhu, chief investment officer at Hong Kong-based Nan Fung Trinity.
“We don’t necessarily think there’s going to be a 50 basis point rate hike at the next Fed meeting, but we do think expectations of a lot of cuts in the second half of this year are probably overblown,” Zhu said. he said on Bloomberg Television.
Investors have been increasing their bets on how much the Fed will raise rates in this tightening cycle. Now they see the federal funds rate rising beyond 5.2% in July, according to trading in the US money markets. That compares with a perceived peak rate of 4.9% just two weeks ago.
Interest rate expectations are also rising in Europe, with money markets boosting ECB rate hike bets after Schnabel’s comments, pricing in a 3.72% deposit rate spike by the end of the third quarter. and eliminating almost all bets on cuts in 2023.
Schnabel said investors risk underestimating the persistence of inflation and the response needed to control it. “We are still a long way from claiming victory,” he said in an interview with Bloomberg, citing the strength of underlying price pressures and faster wage increases.
As for the outlook for US stocks, Bank of America Corp. strategists wrote that a delayed recession will weigh on stocks in the second half of the year, noting that a resilient economy until now it means that interest rates will stay high for longer.
A BofA team led by Michael Hartnett is among those predicting a so-called “no landing” scenario in the first half of the year, where economic growth will remain strong and central banks are likely to stay aggressive for longer. That will likely be followed by a “hard landing” in the latter part of 2023, they wrote.
A benchmark Asian stock index fell for the third week in a row, the worst losing streak since October. China Renaissance Holdings Ltd. fell as much as 50% in Hong Kong, the biggest drop ever, after saying it was unable to contact Bao Fan, the Chinese investment bank’s chairman, chief executive and majority shareholder. The development fueled speculation of a new campaign against China’s financial industry.
Bitcoin fell back after three days of gains fueled by diminishing fears of a US regulatory crackdown. Cryptocurrency-exposed stocks fell in New York pre-market trading, with Coinbase Global Inc., Riot Platforms Inc and Stronghold Digital Mining Inc. among those in decline.
In commodities, oil was headed for a weekly decline as rising US inventories and the prospect of further tightening by the Federal Reserve eclipsed the momentum of more signs China’s energy demand is improving. . Gold fell.
Some of the main movements in the markets:
Stocks
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The Stoxx Europe 600 fell 0.7% at 10:24 a.m. London time
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S&P 500 futures fell 0.7%
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Nasdaq 100 futures fell 0.9%
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Dow Jones Industrial Average futures fell 0.5%
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The MSCI Asia Pacific Index fell 1.3%
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The MSCI Emerging Markets Index fell 1.1%
coins
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The Bloomberg Dollar Spot Index rose 0.5%
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The euro fell 0.3% to $1.0638
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The Japanese yen fell 0.7% to 134.91 per dollar
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The offshore yuan fell 0.4% to 6.8939 per dollar
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The British pound fell 0.5% to $1.1934
CRYPTOCURRENCIES
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Bitcoin fell 3.2% to $23,738.81
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Ether fell 1.1% to $1,665.05
Captivity
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The 10-year Treasury yield rose four basis points to 3.90%.
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Germany’s 10-year yield rose five basis points to 2.53%.
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The UK 10-year yield rose six basis points to 3.56%
raw Materials
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Brent crude fell 2.1% to $83.39 a barrel
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Spot gold fell 0.7% to $1,823.62 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Beth Thomas and Tassia Sipahutar.
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