Shares fell after Federal Reserve Chairman Jerome Powell weighed an earlier end to the bond downsizing, with traders increasing their bets on the pace of interest rate hikes.
In a wild trading session for markets, the treasury curve flattened sharply – with the premium of the 30-year interest rate over the five-year interest rate falling. Powell also told a Senate banking committee that it’s time to stop using the word “transient” to describe inflation. The S&P 500 fell nearly 2 percent, while the Cboe Volatility Index extended its largest monthly increase since February 2020.
“Powell just added gasoline to the fire by finally admitting that inflation is not disappearing as fast as anyone would like,” said Ryan Detrick, chief marketing strategist at LPL Financial. “A faster downsizing is likely to come as a result, and markets have been worried that the punch bowl is leaving the party.”
The money markets are now showing a 55 basis point tightening – more than two standard quarter-point increases – priced in by the end of 2022. That’s an increase from about 50 basis points on Monday. The first full hike remains priced until July. Fed officials have consistently said they want to end the cut before lifting borrowing costs from near zero – where they have been since the pandemic began.
Powell said in his introductory remarks that the recent rise in COVID-19 cases and the emergence of the omicron strain pose “downward risks to employment and economic activity and increased uncertainty for inflation.” In the following question-and-answer period, he focused more on the evidence of increased prices since officials met 2-3. November.
- “Investors may have expected Powell to seek coverage as the omicron variant threatens growth,” said Mike Bailey, research director at FBB Capital Partners. “But he did turn around and signaled faster declining, scary markets.”
- “With potential policy changes on the horizon, market participants should expect further market volatility in this unknown territory,” said Charlie Ripley, senior investment strategist at Allianz Investment Management.
- “We believe the underlying fundamentals of the economy and a forthcoming robust vaccine response to the new threats” will enable the market to recover from the short-term divestiture, “said Chris Zaccarelli, chief investment officer of the Independent Advisor Alliance.
Concerns about the effects of omicron weighed on markets earlier Tuesday, with Moderna Inc. executives saying the many mutations suggest new shots will be needed. The current generation of vaccines is likely to protect against serious disease in humans infected with the variant, according to the head of BioNTech SE. The University of Oxford said there is no evidence that existing shots will provide any protection against the load.
U.S. consumer confidence fell to a nine-month low in November, as a rise in COVID-19 cases and accelerating inflation weighed on Americans’ views of the economy. The final sale for Cyber Monday did not fall to the estimates, as scarce inventory prevented customers from breaking out their credit cards at the start of the Christmas shopping season.
Highlights of some companies:
- Pfizer Inc. had its best monthly growth in 30 years as renewed virus fears revive the market’s focus on vaccine manufacturers.
- AT&T Inc. fell after the company’s communications manager told investors at a conference that he expects customer growth to slow.
- Nasdaq Inc. partnered with Amazon.com Inc. to move its North American stock markets to the cloud from 2022 onwards.
Some of the key movements in markets:
- The S&P 500 fell 1.9 percent from 4 p.m. New York time
- Nasdaq 100 fell 1.6 percent
- The Dow Jones Industrial Average fell 1.8 percent
- The MSCI World Index fell 1.4 percent
- The Bloomberg Dollar Spot Index fell 0.4 percent
- The euro rose 0.4 percent to $ 1.1341
- The British pound fell 0.1 percent to $ 1.3301
- The Japanese yen rose 0.4 percent to $ 113.03 per dollar
- The yield on 10-year government bonds fell six basis points to 1.44 per cent.
- Germany’s 10-year interest rate fell three basis points to -0.35 per cent.
- The UK’s 10-year interest rate fell five basis points to 0.81 per cent.
- West Texas Intermediate crude fell 4.9 percent to $ 66.55 per barrel. barrel
- Gold futures fell 0.7 percent to $ 1,773.30 per share. ounce