(Bloomberg) -- Stocks and bonds fell as Jerome Powell’s warning that the Federal Reserve would raise interest rates more than previously anticipated sapped risk appetite. The pound held declines after the Bank of England raised its key rate to 3%.
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Futures on the S&P 500 fell 0.7% in the wake of Wednesday’s 2.5% drop. The selloff spread to Europe and Asia, where China’s affirmation of its Covid-Zero stance dashed hopes of a reopening. Lumen Technologies Inc., Peloton Interactive Inc., Moderna Inc. and Qualcomm Inc. tumbled in premarket trading, while Etsy Inc. and EBay Inc. rose.
The BOE followed the Fed’s 75 basis-point increase with an equivalent hike on Thursday and said it sees a two-year recession if rates follow the market curve. Powell had disappointed traders betting on a pivot as the US economy remains resilient to stubbornly high inflation.
“Every time the market gets a little bit of dovish hope, it gets smacked on the nose with a rolled up newspaper,” said Scott Rundell, chief investment officer at Mutual Ltd. “There’s a lot of volatility still ahead.”
Investors are concerned about the impact of central bank tightening on economic growth, and Powell left little doubt that he’s prepared to push rates as high as needed to stamp out inflation. The odds of a US recession are rising and the chances it will be mild are falling.
Separately, European Central Bank President Christine Lagarde warned on Thursday that a “mild recession” is possible but that it wouldn’t be sufficient in itself to stem soaring prices.
The dollar gained as investors looked toward US jobs data, which may help to determine the pace of upcoming rate hikes. Norway’s krone fell after its central bank delivered the smallest increase in its benchmark rate since June.
“There is likely some profit taking in long dollar positions after the big moves post the FOMC meeting outcome and Powell’s press conference,” said David Forrester, a senior FX strategist at Credit Agricole CIB in Hong Kong.
Global bonds tumbled on Thursday in the wake of the Fed meeting. Two-year Treasury yields rose to 4.7%, but they’re still below the 5.06% peak in yields priced into Fed funds futures. Two-year gilt yields fell.
“Factoring in the bond market’s assessment, markets are becoming increasingly convinced that the path toward the terminal rate will include a recession,” said Quincy Krosby, chief global strategist at LPL Financial.
Wheat prices fell after Russia agreed to resume a deal allowing safe passage of Ukrainian crop exports. Oil dropped after Powell’s comments on interest rates overshadowed tightening supply.
Elsewhere, Pakistan’s former premier Imran Khan was injured and moved to a safe location after shots were fired at his rally in eastern Punjab province, his spokesman said.
Key events this week:
Bank of England rate decision, Thursday
US factory orders, durable goods, trade, initial jobless claims, ISM services index, Thursday
US nonfarm payrolls, unemployment, Friday
Some of the main moves in markets:
Stocks
Futures on the S&P 500 fell 0.7% as of 8:15 a.m. New York time
Futures on the Nasdaq 100 fell 0.9%
Futures on the Dow Jones Industrial Average fell 0.5%
The Stoxx Europe 600 fell 1.3%
The MSCI World index fell 1.6%
Currencies
The Bloomberg Dollar Spot Index rose 0.6%
The euro fell 0.6% to $0.9756
The British pound fell 1.4% to $1.1236
The Japanese yen fell 0.2% to 148.17 per dollar
Cryptocurrencies
Bitcoin fell 0.2% to $20,141.35
Ether rose 1.6% to $1,535.79
Bonds
The yield on 10-year Treasuries advanced seven basis points to 4.17%
Germany’s 10-year yield advanced 11 basis points to 2.25%
Britain’s 10-year yield advanced 11 basis points to 3.51%
Commodities
West Texas Intermediate crude fell 1% to $89.09 a barrel
Gold futures fell 1.6% to $1,623.50 an ounce
--With assistance from Richard Henderson.
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