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Stocks Fall; Pound Drops as BOE Fails to Reassure: Markets Wrap

Stocks Fall; Pound Drops as BOE Fails to Reassure: Markets Wrap
Stock price information displayed in the lobby of the Euronext NV stock exchange in Paris, France, on Thursday, Sept. 15, 2022. European stock investors are grappling with sticky inflation, hawkish central banks and a worsening energy crisis. Photographer: Nathan Laine/Bloomberg

US stocks dropped, cutting short a cautious rebound led by technology shares, as hawkish central banks across the globe continued to subdue sentiment. The pound extended its drop after the Bank of England says it may not act before November to stem a rout that took the sterling to a record low. 

The S&P 500 fell and the Nasdaq 100 pared gains after both equity gauges plunged last week. US Treasury yields continued to rise, with the 10-year rate hovering around 3.77%. The pound was near $1.07.

Markets are on the edge after a selloff of risk assets deepened last week as the UK’s plan to lift its economy fueled fears that heightened inflation would push rates higher and ignite a global recession. UK markets were in focus on Monday as the pound remained volatile after crashing to an all-time low, with the Bank of England’s hawkish comments doing little to reassure traders.

“From a contrarian perspective, such widespread pessimism is creating buying opportunities,” Ed Yardeni, president of Yardeni Research, wrote in a note. “Admittedly, though, it is getting harder to be optimistic about the economy. It is also getting harder to be bullish on stocks when the Fed is turning more hawkish on monetary policy.”

On Monday, Federal Reserve Bank of Boston President Susan Collins said additional tightening is needed to rein in stubbornly high inflation and cautioned the process will require some job losses.

US markets will continue to remain challenged by uncertainty until companies start to report their third-quarter earnings next month, which will provide greater detail on the health of corporate revenues and profit, wrote John Stoltzfus, chief investment strategist at Oppenheimer.

Investors will also be keeping an eye on the economic data stream for hints of prices cooling, Art Hogan, chief market strategist at B. Riley, wrote in a note.

“What the market will need to see now to get out of the current conundrum is for inflation inputs to start coming down noticeably,” said Hogan. “We will get a read on the Fed’s preferred inflation indicator this Thursday when the second quarter core PCE is reported. Along with that investors will keep a close eye on the economic data stream for hints of prices paid coming down.”

Trading this week will be punctuated by a number of economic reports including US initial jobless claims and gross-domestic-product data, along with PMI figures from China. Choppiness in price moves is likely with a steady stream of Federal Reserve officials speaking through the week.

UK Gilts

The plunge in UK gilts sent 10-year yields above 4% for the first time since 2010. Traders ramped up wagers on the scale of interest-rate hikes in the short term, with money markets pricing in more than 200 basis points of increases by the central bank’s next meeting in November.

Geopolitical risks from the war in Ukraine to escalating tensions over Taiwan and unrest in Iran also weighed on sentiment. Meanwhile, the OECD cut almost all growth forecasts for the Group of 20 next year while anticipating further interest-rate hikes. A gauge of German business confidence deteriorated.

Key events this week:

  • Fed officials Raphael Bostic, Loretta Mester speak at events, Monday
  • ECB President Christine Lagarde at the European Parliament, Monday
  • China industrial profits, Tuesday
  • US new home sales, Conference Board consumer confidence, durable goods, Tuesday
  • Fed Chair Jerome Powell and Charles Evans speak at events, Tuesday
  • Fed’s Mary Daly, Rafael Bostic, Charles Evans and ECB President Christine Lagarde speak at events, Wednesday
  • Euro zone economic confidence, consumer confidence, Germany CPI, Thursday
  • US initial jobless claims, GDP, Thursday
  • Fed’s Loretta Mester, Mary Daly speak at events, Thursday
  • China PMI, Friday
  • Euro zone CPI, unemployment, Friday
  • US consumer income , University of Michigan consumer sentiment, Friday
  • Fed’s Lael Brainard and John Williams speak, Friday

Some of the main moves in markets:

Stocks

  • The S&P 500 fell 0.7% as of 11:45 a.m. New York time
  • The Nasdaq 100 fell 0.1%
  • The Dow Jones Industrial Average fell 0.8%
  • The Stoxx Europe 600 fell 0.4%
  • The MSCI World index fell 2%

Currencies

  • The Bloomberg Dollar Spot Index rose 1%
  • The euro fell 0.7% to $0.9615
  • The British pound fell 2% to $1.0646
  • The Japanese yen fell 0.8% to 144.49 per dollar

Cryptocurrencies

  • Bitcoin rose 0.5% to $19,001.47
  • Ether rose 1.8% to $1,316.27

Bonds

  • The yield on 10-year Treasuries advanced 10 basis points to 3.79%
  • Germany’s 10-year yield advanced seven basis points to 2.09%
  • Britain’s 10-year yield advanced 37 basis points to 4.20%

Commodities

  • West Texas Intermediate crude fell 0.6% to $78.25 a barrel
  • Gold futures fell 0.5% to $1,646.50 an ounce
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