Equities are declining, especially technologically, as government interest rates rise

NEW YORK / LONDON, Jan. 18 (Reuters) – Benchmark US government bond yields jumped to two-year highs, and stock markets fell Tuesday as the Nasdaq fell more than 2% as traders prepared for the Federal Reserve to tackle quickly rising inflation by tightening monetary policy.

The dollar hit its highest level in six days as government interest rates rose, while fears of inflation intensified as oil prices rose to their highest level since 2014 due to possible supply disruptions following attacks in the Gulf, increasing an already tight outlook.

The jump in government interest rates hit US and European technology stocks, while a fall in Goldman Sachs’ (GS.N) equities led to declines among U.S. banks after they missed quarterly earnings when the Fed slowed its asset purchases in November. Read more

Two-year government interest rates, which follow short-term interest rate expectations, rose above 1% for the first time since February 2020, when traders priced a more hawkish Fed ahead of the US Federal Reserve’s political meeting next week.

The two-, three-, and five-year portions of the yield curve will carry the bulk of the expected Fed policy, said Tom di Galoma, CEO of Seaport Global Holdings in Greenwich, Connecticut.

“The front of the market is still very underpriced for Fed tightening. The two-year note could be 1.5% in March,” he said.

Yields on two-year government bonds rose 8.4 basis points to 1.051%, and on 10-year government bonds rose 10.2 basis points to 1.874%, a yield that last peaked in early January 2020.

Interest rates have risen since the minutes of the Fed’s political meeting in December showed that it could raise interest rates faster than expected and start reducing its asset holdings to curb inflation and address a tight labor market. Read more

Information technology was the largest percentage declining sector on Wall Street, losing 2.48% with interest-sensitive finances (.SPSY) the second largest, a decrease of 2.27%.

Technical shares (.SX8P) also weighed the most in Europe with a fall of 2.2% as European equities fell to their lowest level in more than a week. The pan-European STOXX 600 index (.STOXX) fell as much as 1.44% before some losses were closed down by 0.97%.

Securities will continue to revalue as the market predicts rate hikes, said Michael O’Rourke, chief market strategist at JonesTrading in Stamford, Connecticut.

“We still have some way to go to prepare for three rate hikes or four rate hikes. We have not priced that in,” he said.

On Wall Street, Dow Jones Industrial Average (.DJI) fell 1.51%, S&P 500 (.SPX) fell 1.84% and the Nasdaq Composite (.IXIC) fell 2.60% to close nearly 10% below the record that closed on November 19, which would confirm a correction.

MSCI World Index for All Countries (.MIWD00000PUS) closed 1.57% as technology stocks fell in Asia last night despite China easing policy again.

Investors are increasingly pricing as many as four Fed rate hikes this year, the first of which was seen in March, and one from the European Central Bank.

Major market declines often occur this year after excessive gains on Wall Street, with nine divestments starting in the first quarter, averaging 10.9% since World War II, said Sam Stovall, chief investment strategist at CFRA Research.

But “history is a good guide, but it is never gospel,” he said.

Oil was the only positive sector on Wall Street, with Brent oil prices reaching $ 88 a barrel. barrel after Yemen’s Houthi group attacked the United Arab Emirates and escalated hostilities between the Iran-adapted group and a Saudi-led coalition. Read more

Futures on Brent oil rose $ 1.03 to $ 87.51 a share. barrel. Futures on US crude oil rose $ 1.61 to $ 85.43 per share. barrel.

Gold prices fell. US gold futures fell 0.2% to $ 1,812.40 per share. ounce.

Japan’s yen initially fell after the Bank of Japan said it would stick to its ultra-loose monetary policy, despite hopes that the economy is finally getting rid of deflation.

The yen had recently fallen 0.01% to $ 114.5900. The dollar index, which follows the dollar versus a six-currency basket, rose 0.523% to 95,749, and the euro had recently fallen 0.74% to $ 1.1323.

The recently highly volatile Russian ruble rose 1.18% to $ 76.9395 after reports that the West was no longer considering cutting off Russian banks from Swift’s global payment system and instead looked at sanctions against banks.

Reporting by Herbert Lash, further reporting by Sinéad Carew in New York and Marc Jones in London; Edited by Chizu Nomiyama, Jonathan Oatis and Chris Reese

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