Hawkish Central Banks Stocks Crash as Sap Spirits: Market Packed

(Bloomberg) — Stocks tumbled along with US stock futures as fears of policy tightening from the US to Norway to the UK hampered market gains.

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All of Europe’s industrial sub-sectors fell into the red, and Europe’s leading stock index fell about 1%, continuing its fourth day of decline. UK stocks remained lower after the Bank of England raised rates beyond economists’ expectations as it battled the worst inflation since the 1980s and warned it may need to rise again.

Contracts in the S&P 500 and NASDAQ 100 fell after Wall Street sold on hawkish warnings from Federal Reserve Chairman Jerome Powell in congressional testimony.

The fight against inflation is far from over, and central banks around the world are wielding more rate hikes, frustrating bets that the tightening cycle is over. This has prompted investors to reconsider the animal spirits caused by the Fed rate freeze last week.

Janet Mui, head of market analysis at RBC Brewin Dolphin, said: “Longer interest rates may increase recession risk, but risky assets do not reflect that.” “The market is reassessing whether additional risk-taking is justified after the year-to-date rally,” she said.

In the US, fears of a hard landing have re-established amid the prospect of austerity, with the key portion of the Treasury yield curve inverting full percentage points for the first time since March.

In his semiannual report to Congress on Wednesday, Powell stressed the need to tame inflation, saying two more rate hikes this year were “very good speculation”. His warning came ahead of policy meetings in Britain, Switzerland, Norway and Turkey on Thursday.

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The BOE raised its benchmark interest rate by 50 basis points to 5% as it struggled to contain inflation, which rose to a higher-than-expected 8.7% in four months. The money market price now means the BOE’s benchmark will reach 6% by the end of the year, which will be its best since the turn of the century.

“The UK holds the unenviable title of having the highest core inflation rate in the G7,” said Seema Shah, chief global strategist at Principal Asset Management. “The central bank should take a hawkish stance indicating bigger moves in the coming months.n. A sharp slowdown in the UK economy will be the result of an unfortunate but necessary monetary policy.”

Earlier, Norway’s central bank raised the benchmark deposit rate by 50 basis points to 3.75%, the 11th increase in the benchmark since September 2021. Officials said interest rates are “likely to rise further in August”, with a top rate of 4.25%. end of this year.

The Swiss National Bank, on the other hand, raised its benchmark interest rate by a quarter of a point to 1.75%, making it the smallest rate hike since monetary tightening began a year ago. Swiss inflation is the slowest of all developed economies. The increase by Turkey’s central bank was much smaller than most economists expected.

Main events this week:

• Eurozone Consumer Confidence, Thursday

• UK, Switzerland, Indonesia, Norway, Mexico, Philippines, Turkey, Thursday’s Rate Decision

• US Conference Board Leading Index, Initial Jobless Claims, Current Accounts, Existing Home Sales, Thursday

• Fed Chair Powell testifies before the Senate Banking Committee on Thursday

• Cleveland Fed’s Loretta Mester speaks on Thursday.

• Eurozone S&P Global Eurozone Manufacturing PMI, S&P Global Eurozone Services PMI, Friday

• Japanese CPI, Friday

• US S&P Global Manufacturing PMI, Friday

• St. Louis Fed President James Bullard Addresses Friday

Key movements in the market:

stock

• S&P 500 futures are down 0.3% as of 7:21 am NY time.

• Nasdaq 100 futures fell 0.3%

• Dow Jones Industrial Average futures fell 0.3%.

• The Stoxx Europe 600 Index fell 0.9%.

• The MSCI World Index was virtually unchanged.

call

• The Bloomberg Dollar spot index was little changed.

• The euro rose 0.2% to $1.1010.

• The British pound barely changed at $1.2780.

• The Japanese yen was virtually unchanged at 141.94 per dollar.

cryptocurrency

• Bitcoin barely changed at $29,983.36.

• Ether rose 0.7% to $1,892.61

bond

• The 10-year Treasury yield rose 2 basis points to 3.73%.

• The German 10-year yield rose 1 basis point to 2.45%.

• UK 10-year yields fell 4 basis points to 4.36%.

Goods

• West Texas Intermediate crude fell 2.1% to $71.03 per barrel.

• Gold futures closed down 0.3% at $1,939.30 an ounce.

This story was created with help from Bloomberg Automation.

This story was created with help from Bloomberg Automation.

–With help from Garfield Reynolds, Ksenia Galouchko, and Richard Henderson.

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