(Bloomberg) – Bonds fell on Wednesday and U.S. stock futures fluctuated as investors braced for the Federal Reserve’s biggest interest rate hike since 2000 and awaited more clues on the aggressiveness with which it will fight against inflation.
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Retailers led a drop in the Stoxx 600 index in Europe after Boohoo Group Plc warned revenue growth could stall. Energy companies led Russian stocks lower as the European Union announced plans to phase out oil imports from the country this year. The EU is also proposing to cut Sberbank and other lenders from the SWIFT international payment system.
Global bonds are wilting under a wave of monetary tightening, with German 10-year yields at 1% and the UK at nearly 2%. Yields on the safest pound sterling corporate bonds have passed their pandemic peak, as policymakers at the Bank of England weigh the rate hike to their highest level since the global financial crisis.
Adding to the tightening outlook, Isabel Schnabel, a member of the European Central Bank’s executive board, said it was time for policymakers to act to bring inflation under control, and an interest rate hike could come as early as July. .
Treasuries were flat, with the 10-year yield slipping 3%, while a dollar indicator held near two-year highs. The greenback’s strength reflects caution amid an array of risks spanning tighter financial conditions, Covid lockdowns in China and Russia’s war in Ukraine.
Oil rose and gold was little changed.
The Fed is expected to raise rates by 50 basis points on Wednesday and detail plans to reduce its balance sheet. The key for markets will be whether Chairman Jerome Powell’s comment contains any hawkish surprises that could fuel concerns about the threat of a US slowdown as borrowing costs climb.
“There is a difficult set-up in general for risk assets” as valuations remain stretched despite a decline in stocks, said Kathryn Koch, chief investment officer for public markets equities at Goldman Sachs & Co., on Bloomberg Television. She added that “some people think stagflation is a real risk.”
The Fed’s half-point moves are fully priced in by swap traders for June, July and September – the most aggressive trajectory in three decades. Any indication that a bigger 75 basis point hike is a possibility could unsettle markets.
The latest US data showed record levels of job openings and worker departures in March, indicating the prospect of higher wages fueling price pressures.
“The Fed remains very focused on reducing inflation, however, any further hawkish pivot will likely be tempered to some degree by the desire to achieve a soft landing,” wrote Blerina Uruci, US economist at T. Rowe Price. Group Inc., in a footnote.
In premarket trading, Lyft Inc. plunged and was on course to wipe out more than a quarter of its market valuation on Wednesday after the ridesharing company’s second-quarter outlook disappointed Wall Street, underscoring the willingness of investors to dump growth stocks at the first index. of trouble.
Didi Global Inc. dragged down U.S.-listed Chinese internet stocks after news of a U.S. Securities and Exchange Commission investigation into the ride-sharing company’s 2021 New York debut sparked added to investor concerns about the sector.
Europe and the conflict in Ukraine is the topic of this week’s MLIV Pulse survey. Given that the ECB is nearing the end of quantitative easing, is it inevitable that Europe will experience a hard landing and how would that affect assets? It only takes a minute and is anonymous, so share your thoughts in the survey by clicking here.
Key events this week:
Fed rate decision, briefing with Chairman Jerome Powell, Wednesday
EIA Crude Oil Inventory Report, Wednesday
Bank of England rate decision and briefing Thursday
OPEC+ meets virtually for regular meeting on Thursday
U.S. April Jobs Report, Friday
Some of the major movements in the markets:
The Stoxx Europe 600 fell 0.4% at 9:39 am London time
S&P 500 futures rose 0.3%
Nasdaq 100 futures rose 0.2%
Dow Jones Industrial Average futures rose 0.2%
The MSCI Asia Pacific index was little changed
The MSCI Emerging Markets Index fell 0.3%
The Bloomberg Dollar Spot Index was little changed
The euro was little changed at $1.0527
The Japanese yen was little changed at 130.05 to the dollar
The offshore yuan was little changed at 6.6468 to the dollar
The British Pound rose 0.1% to $1.2513
The 10-year Treasury yield was little changed at 2.97%
Germany’s 10-year rate rose three basis points to 1.00%
The UK 10-year yield rose three basis points to 1.98%
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