Stocks, Futures Drop; Bonds Steady Post-Powell: Markets Wrap

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https://www.bloomberg.com- By Andreea Papuc

  • Fed chair says growth to pick up, rising yields show optimism
  • Hong Kong slides on plan to raise equity-trading stamp duty

Stocks fell with U.S. equity futures Wednesday as investors balanced the risk of stronger inflation driving global rates higher against the Federal Reserve’s pledge of continued policy support. Treasuries were steady.

A gauge of Asian shares declined to the lowest in more than two weeks. Hong Kong equities tumbled on the city’s plan to raise stamp duty on stock trading. Chinese gauges retreated for a third day. European equity contracts dipped.

Earlier, the S&P 500 Index reversed losses to close in the green following Fed Chair Jerome Powell’s message Tuesday that the central bank was nowhere close to unwinding its easy policy. Cyclicals outperformed, while the tech heavy Nasdaq 100 closed lower despite a late rally.

Ten-year Treasury yields held just below the one-year high reached Monday. The dollar was little changed. The New Zealand dollar advanced even as the central bank said “prolonged” stimulus was needed. Oil declined after an industry report pointed to the first gain in U.S. crude stockpiles in five weeks.

Powell voiced cautious expectations for a return to more-normal activity later this year and said that higher bond yields reflected economic optimism, not inflation fears. While that helped assuage some investors betting on a global recovery spurred by vaccines and fiscal aid, there are also lingering concerns that stock valuations are stretched.

“The market — while applauding impending fiscal largesse, stronger economic growth, and a markedly more positive earnings outlook — can’t help but wonder whether inflationary pressures will remain ‘transient,’ to use Fed Chairman Jerome Powell’s favorite word,” said Quincy Krosby, chief market strategist at Prudential Financial.

A vote on President Joe Biden’s $1.9 trillion Covid-19 relief bill is due to be held in the House of Representatives on Friday. Money-market traders have pulled forward their rate-hike expectations since the start of this year, and now see the Fed raising interest rates a quarter point by the middle of 2023.

Commodities stabilized after their recent run-up, with the Bloomberg Commodity Spot Index just shy of its highest level since 2013. Elsewhere, Bitcoin rallied back above $50,000 after a bout of volatility highlighted lingering doubts about the durability of the token’s gains.

Some key events to watch this week:

  • EIA crude oil inventory report is out Wednesday.
  • Finance ministers and central bankers from the Group of 20 will meet virtually Friday. U.S. Treasury Secretary Janet Yellen will be among the attendees.

These are some of the main moves in markets:

Stocks

  • S&P 500 futures fell 0.4% as of 5:26 a.m. in London. The S&P 500 index rose 0.1% on Tuesday.
  • Japan’s Topix index dipped 1.8%.
  • South Korea’s Kospi index fell 1.8%.
  • Australia’s S&P/ASX 200 Index shed 0.9%.
  • Hong Kong’s Hang Seng Index tumbled 2.8%.
  • Euro Stoxx 50 futures lost 0.2%.

Currencies

  • The yen fell 0.2% to 105.47 per dollar.
  • The offshore yuan was at 6.4631 per dollar.
  • The Bloomberg Dollar Spot Index was little changed.
  • The euro bought $1.2147.
  • The pound jumped 0.3% to $1.4156.

Bonds

  • The yield on 10-year Treasuries held at 1.34%.
  • Australia’s 10-year bond yield rose five basis points to 1.61%.

Commodities

  • West Texas Intermediate crude fell 1.1% to $61 a barrel.
  • Gold was up 0.2% at $1,808.56 an ounce.

— With assistance by Vildana Hajric, Joanna Ossinger, and Sophie Caronello

 

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