Investors are increasingly worried about inflation, a war in Ukraine and COVID-19 lockdowns in China.
Shares fell to a 13-month low in a selloff amid concerns about the Federal Reserve’s ability to tame inflationary spirals without plunging the economy into a recession.
The S&P 500 fell past 3%, while the Treasury curve steepened, with the spread between 5- and 30-year rates reaching the widest since March. Investors are increasingly worried about the limits of Fed policy at a time when supply chain disruptions pose a significant threat to inflation amid a devastating war in Ukraine and shutdowns of Covid in China. Monday’s price data showed U.S. consumers expect prices three years from now to be higher than a month ago — a troubling sign for officials trying to keep longer-term expectations anchored.
Pandemic-era stars bore the brunt of the sell-off, with Cathie Wood’s flagship exchange-traded fund falling around 10% and an ETF that’s tracking newly listed companies the most since the start of the pandemic. Bitcoin slipped below $32,000, falling more than 50% from its all-time high. The rout also spread to energy producers, by far the strongest sector in the market in 2022. The group plunged more than 8% as crude slid. Big tech has not been spared, with companies like Tesla Inc., Amazon.com Inc. and Nvidia Corp. at least 5%. The Cboe volatility index hit its highest level in two months.
Traders will be watching a host of central bank speakers closely this week after Chairman Jerome Powell downplayed the option of a 75 basis point rate hike on Wednesday. Fed Bank of Atlanta President Raphael Bostic told Bloomberg Television that he favors policymakers who continue to hike rates half a point rather than do anything more significant. . In a subsequent interview with Reuters posted on Twitter, Bostic added that while he saw a slim chance for a 75 basis point hike over the next few months, he was “not taking anything off the table.”
April’s Consumer Price Index report released on Wednesday is the high point of an otherwise quiet week for economic releases. Inflation is expected to have moderated on a monthly and annual basis, partly reflecting lower gasoline prices which have since recovered. With inflation likely peaking in March at 8.5%, the highest in four decades, price pressures are expected to remain elevated, keeping Fed officials on track to steadily raise the costs of inflation. loan in the coming months.
High inflation figures, a slowing economy and aggressive Fed tightening to rein in soaring prices weighed on risk appetite and valuations. Even if an outright recession is averted, the outlook for U.S. stocks isn’t particularly bright, according to strategists at Goldman Sachs Group Inc.
“The fluctuations will remain large until the path of inflation is clarified,” the strategists led by David Kostin wrote in a note to clients, adding that “tightening financial conditions and low market liquidity make it difficult the case for a similar sized short-term rally”. at the end of March.
Here are the key events to watch this week:
- Cleveland Fed President Loretta Mester, Atlanta Fed President Raphael Bostic, New York Fed President John Williams, Fed Governor Christopher Waller speak on Tuesday
- Atlanta Fed President Raphael Bostic speaks on Wednesday
- US CPI, WednesdayEIA Crude Oil Inventory Report, Wednesday
- San Francisco Fed President Mary Daly speaks on Thursday
- US PPI, first jobless claims, Thursday
- University of Michigan Consumer Sentiment Friday
Some of the major movements in the markets:
- The S&P 500 fell 3.2% at 4 p.m. PT
- The Nasdaq 100 fell 4%
- The Dow Jones Industrial Average fell 2%
- The MSCI World index fell 3.1%
- The Bloomberg Dollar Spot Index rose 0.3%
- The euro was little changed at $1.0559
- The British pound fell 0.1% to $1.2333
- The Japanese yen rose 0.3% to 130.22 per dollar
- The yield on 10-year Treasury bills fell 10 basis points to 3.03%
- Germany’s 10-year yield fell four basis points to 1.09%
- The UK 10-year yield fell four basis points to 1.96%
- West Texas Intermediate crude fell 6.8% to $102.28 a barrel
- Gold futures fell 1.6% to $1,852.70 an ounce
–With help from Sunil Jagtiani, Srinivasan Sivabalan, John Viljoen and Vildana Hajric.