Stocks rebound as recession fears rise

US stocks tumbled after Federal Reserve Chairman Jerome Powell reiterated his commitment to curb inflation and acknowledged the risk of recession, even as some traders now expect the central bank to watch closely the impact of its rate hikes on the economy.

The S&P 500 broke a two-day rally and the tech-heavy Nasdaq 100 also fell. Treasury yields declined, with the 10-year yield hovering around 3.15%. The dollar fell after earlier gains while other safe-haven assets such as gold climbed.

Testifying in the Senate on Wednesday, Powell made no reference to the scale of future hikes, but tacitly admitted the Fed hadn’t done its job and said it would be difficult to stage a soft landing. Stocks faltered during the session as some investors took comfort in Powell’s comments as a signal that the Fed will heed economic fundamentals and the likelihood of a recession as it works to reduce the ‘inflation.

“He acknowledged that rates will continue to rise, but the FOMC committee is mindful of the sight of incoming data suggesting the Fed won’t be exclusively on autopilot with tightening,” said portfolio manager Joe Gilbert. for Integrity Asset Management.

Powell’s tone was seen as ‘less hawkish than feared’ because there was no mention of an ‘unconditional’ commitment to lower inflation at the cost of higher unemployment, wrote Krishna Guha and Peter Williams of Evercore ISI in a note.

“The Fed carefully monitors how the media and others respond to its communications, so we doubt this omission was an accident,” they wrote.

The odds that the Fed’s rate hike cycle will extend beyond the November policy meeting, which is the week before the US midterm elections, have fallen sharply as traders continue to assess the prospects for a hard landing and a quicker policy reversal next year.

Others still expect more uncertainty on the horizon as investors analyze Powell’s testimony and comments from former New York Fed Chairman Bill Dudley, who said, in a column from Bloomberg Opinion on Wednesday that a recession is “inevitable” in the next 12 to 18 months.

“No one is going to want to come in and want to buy a market, put anything big on the market while you’re getting this volatility all over the place,” Shawn Cruz, chief strategist at TD Ameritrade, said in an interview at Bloomberg HQ. At New York.

The market remains skeptical about the outlook for risk assets. Deutsche Bank AG CEO Christian Sewing has joined a growing chorus of executives and policymakers who are warning that the global economy could be heading into a recession as central banks step up efforts to rein in inflation.

Bitcoin briefly fell below its key US$20,000 level as investors remain concerned about a global recession. Powell said on Wednesday that there were no significant macro effects so far from the crypto’s decline. He also said Congress should clarify who has the authority to regulate it.

What to watch this week:

  • Powell US House testimony, Thursday
  • First unemployment claims in the United States, Thursday
  • PMI for Eurozone, France, Germany, UK, Australia, Thursday
  • ECB Economic Bulletin, Thursday
  • American University of Michigan Consumer Sentiment Friday
  • RBA’s Lowe speaks at a panel, Friday

Some of the major movements in the markets:

Shares

  • The S&P 500 fell 0.1% at 4 p.m. PT
  • The Nasdaq 100 fell 0.2%
  • The Dow Jones Industrial Average fell 0.2%
  • The MSCI World index rose 1.9%

Currencies

  • The Bloomberg Dollar Spot Index fell 0.2%
  • The euro rose 0.3% to reach US$1.0567
  • The pound was little changed at US$1.2265
  • The Japanese yen rose 0.2% to 136.25 per dollar

Obligations

  • The yield on 10-year Treasury bills fell 13 basis points to 3.14%
  • Germany’s 10-year yield fell 13 basis points to 1.64%
  • The UK 10-year yield fell 16 basis points to 2.50%

Goods

  • West Texas Intermediate crude fell 3.7% to US$105.46 a barrel
  • Gold futures are little changed

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