Equities Tumble as Fed Shock Halts Global Rally: Markets Wrap

(Bloomberg) — European stocks and US index futures declined after the Federal Reserve rebuffed expectations for a dovish tilt and said interest rates will go higher for longer.

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The Stoxx Europe 600 Index retreated the most since Nov. 3. Contracts on the S&P 500 and Nasdaq 100 gauges fell at least 0.9% each. Demand for haven assets sent the dollar and Swiss franc higher. The euro halted a two-day advance as traders awaited policy decisions from the European Central Bank and Bank of England. Oil dropped on signs of increasing supply.

A global rally sparked by softer-than-forecast US inflation came to an abrupt halt on Wednesday after policymakers signaled a peak rate that was far above market expectations and sought to dispel hopes for a rate cut next year. Chair Jerome Powell reaffirmed the central bank won’t back away from its fight against inflation despite mounting fears of job losses and a recession.

“The Fed was decidedly 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 the dollar’s strength headed for the biggest gain since Dec. 5. The euro fell from a six-month high, while Britain’s pound declined 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 its gain after the nation’s central bank doubled the policy rate to 1% as forecast.

China’s yuan fell as poor economic data and a surge in Covid cases weighed. Hong Kong-listed technology shares led a selloff in Asia, while consumer-goods names were the worst performers in Europe. All the 20 subgroups in the Stoxx 600 posted losses.

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Shorter-dated Treasury yields edged higher, with the two-year rate adding 2 basis points. Corresponding German bonds increased 4 basis points.

New Zealand government bond yields rose after the economy grew more than twice as much as economists expected in the third quarter, with the rate on 10-year debt jumping 15 basis points.

Oil slipped after rallying almost 9% over the previous three sessions as TC Energy Corp. restarted a section of the Keystone pipeline, allowing for some flows to resume on the major conduit.

Key events this week:

• ECB rate decision and ECB President Lagarde briefing, Thursday

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

• US cross-border investment, business inventories, empire manufacturing, retail sales, initial jobless claims, industrial production, Thursday

• Eurozone S&P Global PMI, CPI, Friday

Some of the main moves in markets:

Stocks

• The Stoxx Europe 600 fell 1.2% as of 8:38 a.m. London time

• Futures on the S&P 500 fell 0.9%

• Futures on the Nasdaq 100 fell 1.1%

• Futures on the Dow Jones Industrial Average fell 0.7%

• The MSCI Asia Pacific Index fell 1.4%

• The MSCI Emerging Markets Index fell 1.2%

Currencies

• The Bloomberg Dollar Spot Index rose 0.5%

• The euro fell 0.5% to $1.0633

• The Japanese yen fell 0.6% to 136.33 per dollar

• The offshore yuan fell 0.5% to 6.9780 per 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 advanced one basis point to 3.49%

• Germany’s 10-year yield advanced three basis points to 1.97%

• Britain’s 10-year yield declined four basis points to 3.28%

Commodities

• 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 the assistance of Bloomberg Automation.

–With assistance from Richard Henderson and Georgina Mckay.

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