(Bloomberg) -- US equity-index futures fell with Treasuries after a chorus of Federal Reserve officials reiterated their resolve to continue rate hikes and traders raised tightening wagers for other major central banks.
Most Read from Bloomberg
Apple Targets Sept. 7 for iPhone 14 Launch in Flurry of New Devices
Covid’s Harmful Effects on the Brain Reverberate Years Later
Xi and Putin to Attend G-20 Summit in Indonesia, Jokowi Says
Biden Called Cheney After Her Loss to Trump-Backed Challenger
After 2,240% Run, Tesla Visionary Leaves UK Fund Bleeding Money
September contracts on the S&P 500 Index fell 0.5% after Thursday’s gains put the equity benchmark on course for the longest streak of weekly gains since November. Technology shares remained the weaker link, with Nasdaq 100 futures falling 0.6% Friday. The two-year Treasury yield advanced 7 basis points. The dollar headed for the biggest weekly rally since June 10. European stocks opened lower.
Two voting members of the Federal Open Market Committee -- St. Louis’s James Bullard and Kansas City’s Esther George -- emphasized that the US central bank will continue to raise interest rates until inflation eased back to its 2% target. While their views released Thursday diverged on the quantum of the Fed’s September move, they quelled expectations that a string of weak economic data will encourage the Fed into a dovish pivot.
Non-voting officials also reiterated the Fed’s hawkish stance. San Francisco’s Mary Daly said officials would be in no hurry to reverse course next year. That pushed back against investor bets for rate cuts before the end of 2023. Minneapolis’s Neel Kashkari said that “we have an inflation problem right now,” and that the central bank has to get it down “urgently.”
Money markets raised central-bank tightening wagers, with 40% odds of a 75-basis-point Fed hike in September and a 33% probability of a similar increase by the Bank of England, while a half-point hike by the European Central Bank is baked in.
Investors are now focusing on the Fed’s annual symposium at Jackson Hole, Wyoming, for further clues on the policy path. While the rate hikes have been expected and well understood for long, recent data releases suggesting a slowdown in activity have underscored their ballooning impact on the world’s largest economy. Economists see a 50% chance of recession in the US, and a similar or even stronger probability of contraction in Europe.
Worsening the sentiment is the Fed’s simultaneous shrinking of its $8.9 trillion balance sheet, with the annual pace of reductions set to accelerate to $1 trillion next month.
Europe’s Stoxx 600 fell, on course for a weekly decline. All industry groups were in the red, with travel & leisure stocks posting the worst performance. Asian shares retreated, led by Chinese mainland stocks.
The Bloomberg Dollar Spot Index was set for a 1.7% increase this week, having advanced on five of the past six days.
Geopolitical tensions are bubbling back into the surface, adding to the haven bid for the greenback. Indonesian President Joko Widodo said China’s Xi Jinping and Russia’s Vladimir Putin plan to be at a Group of 20 summit in Bali later this year. That sets up a showdown with US President Joe Biden and others as Russia continues its war in Ukraine.
Oil, gold and Bitcoin dropped. Later Friday, a $2 trillion options expiration could stir volatility in global markets.
Inflation remains the most closely-watched indicator in the second half. Will it come down gradually, or will it stay elevated, forcing the Fed to keep raising rates aggressively? Have your say in the anonymous MLIV Pulse survey.
Some of the main moves in markets:
Stocks
The Stoxx Europe 600 fell 0.3% as of 8:20 a.m. London time
Futures on the S&P 500 fell 0.5%
Futures on the Nasdaq 100 fell 0.6%
Futures on the Dow Jones Industrial Average fell 0.3%
The MSCI Asia Pacific Index fell 0.6%
The MSCI Emerging Markets Index fell 0.4%
Currencies
The Bloomberg Dollar Spot Index rose 0.2%
The euro was little changed at $1.0086
The Japanese yen fell 0.5% to 136.55 per dollar
The offshore yuan fell 0.2% to 6.8192 per dollar
The British pound was little changed at $1.1922
Bonds
The yield on 10-year Treasuries advanced five basis points to 2.94%
Germany’s 10-year yield advanced seven basis points to 1.17%
Britain’s 10-year yield advanced nine basis points to 2.40%
Commodities
Brent crude fell 1.1% to $95.49 a barrel
Spot gold fell 0.2% to $1,754.29 an ounce
Most Read from Bloomberg Businessweek
Richest Silicon Valley Suburb Says Build Anywhere But Here
AMC’s CEO Will Do Whatever It Takes to Keep His Company a Meme Forever
Chinese EV Maker BYD Aims to Conquer World Markets as the Un-Tesla
A Crypto Winter King Wants to Reanimate the Industry
Neobanks Are Struggling to Make Good on Their Lofty Promises
©2022 Bloomberg L.P.
