Stocks slide, bonds hit as bets on Fed action rise

The DAX chart of the German stock price index is pictured on the stock exchange in Frankfurt, Germany, February 28, 2022. REUTERS/Staff

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  • Yields on US Treasuries hit multi-year highs
  • The dollar at its strongest for almost two years
  • Fed minutes in full view as big rate hike bets rise
  • Oil gains as markets await new sanctions from Russia

LONDON, April 6 (Reuters) – Global stock prices eased and U.S. Treasury yields hit multi-year highs on Wednesday, as investors bet the U.S. Federal Reserve will pair its balance sheet reduction next month with a sharp rise interest rates to suppress decades-high inflation.

Investors were also awaiting details on the latest set of coordinated sanctions against Russia from the United States and its allies over the killings of civilians in Ukraine. Read more

The dollar hit its highest level in nearly two years as expectations of further sanctions raised concerns over oil supply to drive up crude prices. Read more

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The STOXX stock index (.STOXX) of 600 European companies fell 0.8%, while the MSCI All-Country stock index (.MIWD00000PUS) lost 0.4%.

Fed Governor Lael Brainard said overnight that she expects a combination of interest rate hikes and rapid balance sheet runoff to bring U.S. monetary policy to a “more neutral” later this year. Read more

“What we’re getting here is a knee-jerk reaction to the prospect of not only a 50 basis point increase, but we could also start to see the outlines of the balance sheet reduction much sooner than the markets have. currently expected,” said Michael Hewson, chief market analyst at CMC Markets.

On Wednesday, investors will focus on the publication of the minutes of the last policy meeting of the Fed, at 18:00 GMT.

“The minutes will be important for two main reasons. First, for clues about the likelihood of a 50 basis point hike and what the committee would need to see to justify accelerating the pace of the hikes,” they said. said UniCredit analysts in a note to clients. .

Futures on the S&P500 edged down 0.3%.

The yield on benchmark 10-year Treasuries hit 2.63%, hitting three-year highs after Brainard’s remarks.

The US 2-year yield hit its highest level since January 2019 and the 5-year yield hit its highest since December 2018.

Grace Peters, head of EMEA investment strategy at JPMorgan Private Bank, said 2022 was likely the last year of above-trend economic growth.

“We are seeing Fed policy moving quickly into restrictive territory. But we don’t need to give up on stocks, it just means we need to be more aware of the risks. At this point I would buy the dips but I switch to higher quality assets,” Peters says.

“Markets see the curve reversal as the clock ticks forward to the next recession. double digits,” she said.

Balance sheet

REDUCTION OF SERVICES IN CHINA

Chinese markets also caught the eye, after data showed activity in its services sector shrank the fastest in two years in March as a spike in coronavirus infections restricted mobility and was weighing on customer demand, a closely watched private sector investigation showed. Read more

Hong Kong’s Hang Seng Index (.HSI) lost 1.8% on its return from vacation, moving away from a one-month high hit on Monday, Chinese blue chips (.CSI300) lost 0, 3%.

Chinese authorities on Tuesday extended Shanghai’s COVID-19 lockdown to cover all of the financial hub’s 26 million residents, despite growing anger over quarantine rules. Read more

The Japanese Nikkei (.N225) lost 1.6%, while MSCI’s broadest index of non-Japan Asia-Pacific stocks (.MIAPJ0000PUS) slipped 1.3%.

The dollar index hit 99.603 after hitting its highest since late May 2020 at the start of trading, also supported by a slide in the euro, which fell to $1.0894, hurt by fears of more sanctions against Russia harm the European economy.

The greenback was also trading firm against the yen at 123.86 yen given the conviction and repeated actions of the Bank of Japan last week to keep the yield on Japanese 10-year government bonds below 0. .25%.

Rising global bond yields have put pressure on gold, which is yielding nothing. Spot gold traded down 0.16% to $1,928.8 an ounce.

Oil prices recovered from early losses as the threat of new sanctions on Russia raised supply concerns, but there were fears of a drop in demand following a rise in US crude inventories and the prolonged lockdown from Shanghai.

U.S. crude rose 0.8% to $102.80 a barrel. Brent rose 0.9% to $107.61 a barrel.

US Treasury yield at three-year high
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Additional reporting by Sujata Rao, Daniel Leussink, Alun John in Hong Kong, Editing by Sam Holmes, Robert Birsel and Alexander Smith

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