Shares fell around the world as fears of a recession resurfaced as the Federal Reserve struggled to overcome inflation, which proved more sustained and widespread than officials expected.
The rally following the Fed’s decision failed, with the S&P 500 reaching its lowest level since December 2020. The tech Nasdaq 100 sank 4 percent. Kroger Co. fell after the supermarket company said higher costs affected margins. Revlon Inc. filed for bankruptcy under Chapter 11, as the crisis in the supply chain proved to be the turning point for the debt-laden cosmetic giant.
The 10-year yield on government bonds resumed its rapid increase, rising by as much as 21 basis points to 3.49%. Later, they halved their lead. Bitcoin, which previously added 6.1 percent, fell to about $ 21,000 and is heading for its longest losing streak in Bloomberg data from 2010.
Bad economic signals also weighed on sentiment, with US mortgage rates rising the most since 1987, increasing pressure on potential home buyers and cooling the housing market. New housing construction in the United States fell in May, highlighting the impact of ongoing supply chain challenges and declining sales.
Stating it was essential to curb inflation, Jerome Powell created the biggest interest rate increase since 1994 on Wednesday and pointed to the clear possibility of another big increase in July. While the Fed chief tried to soften the blow from the 75-point rise, saying he did not expect moves of this magnitude to become the norm, he effectively acknowledged the chance of an economic downturn.
“We are worried about growth and where the Fed has taken us in the end,” said Chris Gaffney, president of global markets at TIAA Bank. “Everyone said yesterday, ‘Oh, well, the Fed is doing something aggressive, they’re going to be aggressive, they’re going to try to catch up with the inflation curve.’ to catch? ”
The S&P 500 now represents an 85% chance of a recession in the United States amid fears of political error by the Fed, according to JPMorgan Chase & Co. The warning from quantitative and derivative strategists is based on an average 26% drop in the measurement index over the past 11 recessions, followed by a bear market crash amid worries about rising inflation and aggressive interest rate hikes.
A technical indicator on US stocks shows the extent of the recent decline, while offering a hint of optimism that it will end soon.
The percentage of S&P 500 members trading above their 50-day moving average fell below 5% this week, the lowest level since Covid-19 feared the stock hit more than two years ago. Both this sell-off and the one that hit markets in late 2018 reversed shortly after seeing such a share fall below the closely monitored technical average.
More comments:
- “Our main conclusion from the Fed is the hawk – which means that the Fed will take the risk of recession to ensure economic growth below the trend,” wrote Dennis DeBuscher, founder of 22V Research.
- “The market got what it wanted, but maybe, just maybe, increasing 75 bps in a rapidly weakening economy is not the best idea,” wrote Peter Cheer, head of macro strategy at Academy Securities.
- “Despite their assurances, it’s not clear to me whether the Fed has the tools they say they’re doing to cut prices,” said Jason Brady, chief executive of Thornburg Investment Management.
- “Linosa has not been torn off and, if nothing else, greater uncertainty about the scale of the next move has increased,” said Neil Kemling, head of technology, media and telecoms research at Mirabaud Securities.
Elsewhere, investors dumped European bonds and the franc rose after a surprising rise in interest rates in Switzerland. The pound rose as the Bank of England raised interest rates and signaled it was ready to take bigger moves if necessary. Currency options traders are betting that the Bank of Japan will deliver a surprise policy this week.
Highlights this week:
- Decision on the policy of the Bank of Japan, Friday.
- CPI in the euro area, Friday.
- Leading index of the US Conference Board, Industrial Production, Friday
Some of the main market movements:
Stocks
- The S&P 500 fell 3.3% at 10:49 a.m. New York
- The Nasdaq 100 fell 4.1%.
- The Dow Jones industrial average fell 2.6%.
- The Stoxx Europe 600 fell 2.6%.
- The MSCI World Index fell 2.5%.
Currencies
- The Bloomberg Dollar spot index has changed slightly
- The euro rose 0.4% to $ 1.0481
- The British pound rose 0.5% to $ 1.2244
- The Japanese yen rose 0.8% to 132.79 per dollar
Bonds
- Yields on 10-year bonds rose eight basis points to 3.36%
- Germany’s 10-year yield rose 11 basis points to 1.75%.
- UK 10-year yield rose 11 basis points to 2.58%
Goods
- West Texas Intermediate crude rose 0.3 percent to $ 115.61 a barrel
- Gold futures rose 0.6% to $ 1,831.30 an ounce
Add Comment