Stocks Plunge as Fed Shock Halts Global Rally: Markets Close

(Bloomberg) – European stocks and US index futures fell after the Federal Reserve rejected expectations of an accommodative bias and said interest rates would rise for longer.

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The Stoxx Europe 600 index is down the most since November 3. Contracts on the S&P 500 and Nasdaq 100 indicators fell by at least 0.9% each. The demand for safe-haven assets drove up the dollar and the Swiss franc. The euro halted a two-day rally as traders awaited policy decisions from the European Central Bank and the Bank of England. Oil fell on signs of increased supply.

A global rally sparked by weaker-than-expected US inflation came to an abrupt halt on Wednesday after policymakers signaled a cap rate that was far above market expectations and tried to dash hopes of a rate cut on next year. Chairman Jerome Powell reiterated that the central bank will not back down from its fight against inflation despite growing fears of job losses and recession.

“The Fed has been significantly more bearish than expected,” said Karen Jorritsma, head of Australian equities at RBC Capital Markets. “They will stay the course on inflation, making a hard landing almost a certainty.”

An index of dollar strength headed for the biggest gain since December 5th. The euro fell from a six-month high, while the British pound fell for the first time in seven days. The ECB and BOE are expected to follow the Fed with half point hikes.

The Swiss franc held on to its gain after the nation’s central bank doubled its policy rate to 1% as expected.

The Chinese yuan fell on poor economic data and rising Covid cases. Hong Kong-listed technology stocks led a sell-off in Asia, while consumer staples stocks were the worst performers in Europe. All 20 subgroups of the Stoxx 600 posted losses.

Shorter-maturity Treasury yields increased, with the 2-year rate adding 2 basis points. The corresponding German bonds increased by 4 basis points.

New Zealand government bond yields rose after the economy grew more than double what economists expected in the third quarter, with the 10-year debt rate climbing 15 basis points.

Oil slipped after rising nearly 9% in the previous three sessions as TC Energy Corp. restarted a section of the Keystone Pipeline, allowing some flows to resume on the main pipeline.

Key events this week:

  • ECB rate decision and briefing by ECB President Lagarde, Thursday

  • Rate decisions for BOE UK, Mexico, Norway, Philippines, Switzerland, Taiwan, Thursday

  • US Cross Border Investment, Corporate Inventories, Imperial Manufacturing, Retail Sales, Initial Jobless Claims, Industrial Production, Thursday

  • Eurozone S&P Global PMI, CPI, Friday

Some of the major moves in the markets:

Actions

  • The Stoxx Europe 600 was down 1.2% as of 8:38am London time

  • S&P 500 futures fell 0.9%

  • Nasdaq 100 futures fell 1.1%

  • Dow Jones Industrial Average futures fell 0.7%

  • MSCI Asia Pacific Index fell 1.4%

  • MSCI Emerging Markets Index fell 1.2%

Currencies

  • The Bloomberg Dollar Spot Index is up 0.5%

  • The euro fell 0.5% to $1.0633

  • The Japanese yen fell 0.6% to 136.33 to the dollar

  • The offshore yuan fell 0.5% to 6.9780 to the dollar

  • The British pound fell 0.6% to $1.2346

Cryptocurrencies

  • Bitcoin fell 0.9% to $17,675.31

  • Ether fell 1.7% to $1,288.09

Bonds

  • The yield on 10-year Treasuries rose by a basis point to 3.49%

  • German 10-year yield rose three basis points to 1.97%

  • UK 10-year yield fell four basis points to 3.28%

Goods

  • Brent crude fell 0.8% to $82.05 a barrel

  • Spot gold fell 1.6% to $1,777.92 an ounce

This story was produced with assistance from Bloomberg Automation.

–With assistance from Richard Henderson and Georgina Mckay.

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