(Bloomberg) — Stock markets worldwide extended losses on Thursday, as US 10-year Treasury bonds topped 4% for the first time since November in a sign that the Federal Reserve’s warnings of higher-for-longer interest rates are finally sinking in.
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Europe’s Stoxx 600 equity index retreated 0.5%, having fallen to three-week lows on Wednesday as hotter-than-forecast German inflation data pushed money markets to bet on further interest rate rises from the European Central Bank. Markets are now bracing for the release of bloc-wide figures later in the day. US equity futures also fell, with contracts on the rate-sensitive Nasdaq down about 1% after both it and the S&P 500 index ended February with losses. In Asia, Hong Kong stocks slid as much as 1.5%
The focus now is on how much higher interest rates might go in the US and euro zone, with swaps markets now pricing a peak Fed policy rate of 5.5% in September, and some even betting on 6%. US 10-year yields, the main reference rate for the global cost of capital, rose 40 basis points in February and are consolidating their rise past 4%. ECB interest rates are now seen rising above 4%.
Such bets have been encouraged this week by a series of hot inflation readings across Europe, alongside a surge in a US manufacturing prices gauge. Fed officials, meanwhile, have continued to reinforce their hawkish stance – Atlanta Fed President Raphael Bostic on Wednesday urged continued rate hikes to above 5% to make sure inflation doesn’t pick up again, while the Minneapolis Fed’s Neel Kashkari said he was concerned there wasn’t much sign that rate hikes are slowing the services sector.
That’s damping appetite for risk taking in markets around the world, with some even expressing concern that China’s post-Covid economic recovery could exacerbate global price pressures.
China’s reopening is a much-needed bright spot for investors, but in terms of inflation “adds cyclical upside pressure because of the sheer amount of demand” that it brings, especially in commodities, Charu Chanana, senior markets strategist at Saxo Capital Markets, said on Bloomberg Television.
The hawkish Fed rate bets supported the US dollar against its Group-of-10 counterparts, with the greenback looking set to extend February’s 2.6% gain. The currencies of raw materials and energy exporters such as Australia, New Zealand and Norway slipped the most while the euro and sterling lost about 0.4%.
China’s offshore-traded yuan also slipped, following Wednesday’s 1%-plus rally that was driven by strong economic data.
Oil was slightly lower after a two-day gain as traders weighed the potential revival in Chinese demand against concerns over tighter US monetary policy.
Some of the main moves in markets:
Stocks
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The Stoxx Europe 600 fell 0.5% as of 8:25 a.m. London time
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S&P 500 futures fell 0.6%
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Nasdaq 100 futures fell 0.8%
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Futures on the Dow Jones Industrial Average were little changed
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The MSCI Asia Pacific Index fell 0.4%
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The MSCI Emerging Markets Index fell 0.3%
Currencies
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The Bloomberg Dollar Spot Index rose 0.3%
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The euro fell 0.3% to $1.0635
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The Japanese yen fell 0.3% to 136.56 per dollar
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The offshore yuan fell 0.5% to 6.9148 per dollar
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The British pound fell 0.5% to $1.1972
Cryptocurrencies
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Bitcoin fell 0.6% to $23,405.94
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Ether fell 0.8% to $1,644.25
Bonds
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The yield on 10-year Treasuries advanced four basis points to 4.03%
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Germany’s 10-year yield advanced three basis points to 2.74%
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Britain’s 10-year yield advanced two basis points to 3.86%
Commodities
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Brent crude fell 0.2% to $84.11 a barrel
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Spot gold fell 0.2% to $1,832.13 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Rheaa Rao and Tassia Sipahutar.
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