U.S. stocks cut earlier gains and government bond yields rose as fears resurfaced that the Federal Reserve’s aggressive rise in interest rates could drive the economy into recession after Central Bank Chairman Jerome Powell reiterated his determination to limit inflation on friday.
The S&P 500 and the tech Nasdaq 100 were hesitant, comparing earlier gains after Thursday’s crash brought US stocks to their lowest level since late 2020. Friday also brings a three-month event known as triple magic. The expiration of the $ 3.5 trillion options could lead to short coverage, which could bring temporary relief to the stock market. The yield on 10-year government bonds exceeded 3.2%. The dollar broke two days of losses.
Markets are rounding out the week of rising interest rates, including the biggest move by the Federal Reserve since 1994, a shocking rise by the Swiss National Bank and the latest increase in borrowing costs in the UK. Rising interest rates drain liquidity, causing losses in a number of assets.
Powell said on Friday that the central bank was “sharply focused” on returning inflation to 2 percent and that a new increase of 75 basis points or 50 basis points was likely at the July meeting. Kansas City Federal Reserve Chairman Esther George said he opposed the Fed’s decision on Wednesday because the move, combined with the central bank’s balance sheet shrinking, created uncertainty about the outlook.
US factory production data for May point to lower demand as production fell unexpectedly. Meanwhile, industrial production rose in May, but below forecast.
Global stocks are facing one of their worst weeks since the pandemic shocks of 2020, and investors aren’t sure the assets have sunk enough to appreciate the tightening cycle.
“We are hesitant to call the bottom of the stock until we see the impact of the quantitative tightening, which is an underwater current that could drag stock prices lower. There is currently a huge uncertainty about the quantitative tightening and investors need to prepare for additional volatility, “said Richard Saperstein, chief investment officer at Treasury Partners.
Bitcoin fell below $ 21,000 after breaking its longest losing streak in Bloomberg data earlier on Friday Friday. a week that froze withdrawals, telling its customers it was facing “unusual liquidity pressures” as it struggled with the recent market downturn. Oil has fallen as traders have weighed in on the prospect of slower economic growth against limited supplies.
“The market continues to fluctuate in the narrative of the year, between monetary normalization due to inflation and monetary policy error: a source of sustained volatility for equity estimates,” said Florian Yelpo, macro chief at Lombard Odier Asset Management.
U.S. stocks raised $ 14.8 billion in the week to June 15, their sixth consecutive week of gains, according to Bank of America Corp., citing EPFR Global. A total of $ 16.6 billion went into equities worldwide during the period when bonds had the largest redemption since April 2020 and just over $ 50 billion in cash, the data show. In a separate report, BofA raised European stocks to neutral from negative, saying the impact of economic news is now being measured in price.
The Stoxx Europe 600 index rose on Friday after reaching its lowest level in more than a year. Banks performed better after ABN AMRO Bank NV rose after BNP Paribas SA expressed interest in buying the Dutch lender.
LAGARD BET
Italian bonds have boosted European debt after European Central Bank President Christine Lagarde promised that the cost of borrowing from more indebted eurozone countries would not be out of control. Italy’s 10-year yield fell by as much as 20 basis points, while Germany’s equivalents fell by five basis points.
Japan, meanwhile, has maintained a super-easy monetary policy and control of the yield curve, resisting pressure to follow the global trend toward tighter sentiment. The yen sank and the yield on 10-year Japanese bonds fell below the Bank of Japan’s 0.25% cap, after previously reaching 0.265%, the highest since 2016.
Some of the main market movements:
Stocks
- The S&P 500 fell 0.6% at 10:35 a.m. New York
- The Nasdaq 100 fell 0.2%.
- The Dow Jones industrial average fell 0.7 percent
- Stoxx Europe 600 increased by 0.3%.
- The MSCI World Index fell 2.4%.
Currencies
- The Bloomberg Dollar spot index rose 1.2%.
- The euro fell 1% to $ 1.0447
- The British pound fell 1.4% to $ 1.2178
- The Japanese yen fell 2.2% to 135.15 per dollar
Bonds
- Yields on 10-year bonds rose nine basis points to 3.28%
- Germany’s 10-year yield rose two basis points to 1.73%.
- Britain’s 10-year yield rose by one basis point to 2.53%.
Goods
- West Texas Intermediate crude fell 3.9 percent to $ 113 a barrel
- Gold futures fell 0.3% to $ 1,843.60 an ounce
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