Stocks and bond yields fall as US data clouds Fed rate outlook

Stocks and bond yields fall as US data clouds Fed rate outlook

  • Wall Street extends losses as recession worries mount
  • Crude oil at lowest since January
  • Bank of Canada signals slowing pace of rate hikes
  • China eases COVID rules but imports and exports slump

NEW YORK/MILAN, Dec 7 (Reuters) – Global stocks fell further and Treasury yields fell on Wednesday as U.S. worker productivity data beat forecasts but extended a weak trend, further complicating the debate on the magnitude and speed of the rise in US interest rates.

Third-quarter productivity rebounded at a slightly faster pace than initially expected. Economists said the reading pointed to high labor costs and inflation remaining high, adding pressure on the Federal Reserve to keep raising rates.

But benchmark US yields and the dollar both fell, suggesting a rate cut is ahead.

“Slower rate hikes have been the global trend lately, but the Fed remains a wild card. Overall, it’s a choppy and anxious market ahead of next week’s Fed meeting,” he said. Joe Manimbo, senior market analyst at Convera in Washington.

The S&P 500 and Nasdaq fell, adding to yesterday’s selloff on warnings from three major US banks of an impending recession. Questions about inflation stickiness have raised uncertainty about the Fed’s policy path, as the pace of future inflation remains unknown.

“If you look at previous decades of high levels of inflation, it usually takes a few years for inflation to moderate,” said Chris Dyer, head of global equities at Eaton Vance in London.

The MSCI gauge of stocks across the world (.MIWD00000PUS) fell 0.42%, while the broad European STOXX 600 index (.STOXX) closed down 0.62% to mark its fourth consecutive decline as as fears of a global recession intensified.

On Wall Street, the Dow Jones Industrial Average (.DJI) closed flat, while the S&P 500 (.SPX) lost 0.19% and the Nasdaq Composite (.IXIC) fell 0.51%.

Many market participants believe inflation is moderating and bond yields have peaked, allowing central banks to begin to slow rate hikes when policymakers from the Fed, Bank of England and European Central Bank will meet next week.

The Bank of Canada signaled on Wednesday that its historic tightening campaign was coming to an end by raising benchmark overnight interest rates by 50 basis points to 4.25%, the highest level in nearly 15 years.

Earlier, the Reserve Bank of India slowed the pace of rate hikes with a 35 basis point hike in its key rate to 6.25%, but warned inflation could remain pervasive and elevated.

Fed Chairman Jerome Powell also warned that the fight against inflation was far from over, but late last month he said the Fed could slow the pace of its rate hikes as soon as december.

Powell’s comments led the market to price a lower peak interest rate, which fed funds futures showed Wednesday at 4.918% next May, down from recent highs above 5, 1%. Futures contracts show the terminal rate at 4.419% in December 2023.

The yield on the benchmark 10-year Treasuries fell 9.2 basis points to a nearly three-month low of 3.421%. But the reversal in yields on two- and ten-year notes, a harbinger of recession, deepened to -84.5 basis points.

Gold prices rose, helped by a decline in the dollar and Treasury yields, as investors anticipate the projection of slower rate hikes at the Fed’s Dec. 13-14 meeting.

US gold futures settled up 0.9% at $1,798 an ounce.

The dollar fell as traders weighed an uncertain economic outlook, while the Chinese yuan strengthened as authorities relaxed some of the country’s zero COVID rules.

The euro gained 0.37% to $1.0508 and the yen strengthened 0.44% to 136.45 to the dollar.

China’s national health authority said asymptomatic COVID-19 cases and those with mild symptoms can self-treat under home quarantine, the strongest sign so far that Beijing is preparing to live with the coronavirus. sickness.

Market reaction was negative as the focus shifted to China’s ability to execute its policy shift.

“It’s hard to assume that China’s reopening won’t be inflationary when the reverse was true for the rest of the world and that will be the challenge going into 2022,” said Geoff Yu, strategist at BNY Mellon.

Oil slid to its lowest level since the start of the year in volatile trading after US government data showed an unexpected rise in fuel inventories, stoking fears over demand in a market already spooked by a uncertain economy.

U.S. crude fell $2.24 to settle at $72.01 a barrel, while Brent settled down $2.18 to $77.17.

Reporting by Herbert Lash, additional reporting by Danilo Masoni in Milan; Tom Westbrook in Singapore; Editing by John Stonestreet, Nick Zieminski and David Gregorio

Our standards: The Thomson Reuters Trust Principles.

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