Tag: US Stocks

US Federal Reserve holds steady on interest rates, signals potential future cuts

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The US Federal Reserve held interest rates steady on Wednesday and signaled it is still leaning towards eventual reductions in borrowing costs, but put a red flag on recent disappointing inflation readings and suggested a possible stall in the movement towards more balance in the economy.

The Fed’s latest policy statement, issued at the end of a two-day meeting, kept key elements of its economic assessment and policy guidance intact, noting that “inflation has eased” over the past year, and framing its discussion of interest rates around the conditions under which borrowing costs can be lowered.

US stocks pared losses following the release of the policy statement while the US dollar fell against a basket of currencies. US Treasury yields fell.

Investors in contracts tied to the Fed’s policy rate continued to see the US central bank beginning to cut rates in November and added to bets that it will deliver at least one reduction in borrowing costs this year.

“The (Federal Open Market Committee) does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably towards 2%,” the Fed repeated in a unanimously-approved statement that still indicated the next move on rates will be down.

That continues to leave the timing of any rate cut in doubt, and Fed officials made emphatic their concern that the first months of 2024 have done little to build the confidence they seek in falling inflation.

“In recent months, there has been a lack of further progress towards the Committee’s 2% inflation objective,” the Fed said in its statement. Where the prior statement in March suggested an improving dynamic, saying that the risks to the economy “are moving into better balance,” the new statement hinted that the process may have stalled with its assessment that risks “have moved toward better balance over the past year.”

“The Committee marked to market on inflation by noting that Q1 data didn’t show the additional progress that they hoped to see, but the statement also suggested that they would not view further labor market strength through an inflationary lens,” said Omair Sharif, president of Inflation Insights.

BALANCE SHEET

The US central bank also announced it will scale back the pace at which it is shrinking its balance sheet starting on June 1, allowing only $25 billion in Treasury bonds to run off each month versus the current $60 billion. Mortgage-backed securities will continue to run off by up to $35 billion monthly.

The step is meant to ensure the financial system does not run short of reserves as happened in 2019 during the Fed’s last round of “quantitative tightening.”

While the move could loosen financial conditions at the margin at a time when the US central bank is trying to keep pressure on the economy, policymakers insist their balance sheet and interest rate tools serve different ends.

The benchmark policy rate has been held in the current 5.25%-5.50% range since July. Rate cuts had been anticipated as early as March of this year, but have been pushed back as incoming inflation data showed that progress towards the 2% target had stalled. The personal consumption expenditures price index, which is the Fed’s preferred inflation gauge, increased 2.7% in March on a year-over-year basis.

“Inflation remains elevated,” the Fed’s policy statement said, repeating a phrase that many analysts feel will likely need to be removed as a precursor to an initial rate reduction.

Fed Chair Jerome Powell will hold a press conference at 2:30 p.m. (1830 GMT) to elaborate on the outcome of the policy meeting.

The statement maintained its overall assessment of economic growth, saying that the economy “continued to expand at a solid pace. Job gains have remained strong and the unemployment rate has remained low.”

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Wall Street wavers, Treasury yields gain as debt ceiling debate plods on

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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U.S. stocks searched for direction and benchmark Treasury yields rose as wavering optimism over a debt ceiling deal from Washington was overshadowed by a dour regional manufacturing report.

Futures suggested all three major stock indexes were primed for gains, but those gains quickly lost momentum after the opening bell, hot on the heels of a steeper-than-expected contraction in New York State manufacturing data.

With first-quarter earnings season approaching the finish line, market participants had little to focus on, outside of partisan wrangling on Capitol Hill as President Joe Biden and congressional Republicans square off over a debt limit deal.

“It continues to be a ’two steps forward one step back’ market,” said Oliver Pursche, senior vice president at Wealthspire Advisors, in New York. “Until we get a resolution about the debt ceiling, which I don’t expect before June 1st, I think we’ll see this volatility and a directionless market, especially as earnings wind down and there’s little else for investors to hold onto.”

Also Read: Japan stocks and US futures edge up, USTs hold rally

The Dow Jones Industrial Average fell 28.92 points, or 0.09 percent, to 33,271.7, the S&P 500 lost 1.21 points, or 0.03 percent, to 4,122.87 and the Nasdaq Composite added 11.21 points, or 0.09 percent, to 12,295.96.

European stocks pared initial gains and were last nominally higher as investors eyed ongoing U.S. debt ceiling negotiations and Turkey’s impending election runoff.

The pan-European STOXX 600 index rose 0.12 percent and MSCI’s gauge of stocks across the globe gained 0.14 percent.

Emerging market stocks rose 0.39 percent. MSCI’s broadest index of Asia-Pacific shares outside Japan closed 0.72 percent higher, while Japan’s Nikkei rose 0.81 percent.

Longer-dated U.S. Treasury yields rose as lingering worries over slow-cooling inflation after Atlanta Fed President Raphael Bostic said he did not expect any interest rate cuts this year.

Benchmark 10-year notes last fell 11/32 in price to yield 3.5019 percent, from 3.463 percent late on Friday.

The 30-year bond last fell 31/32 in price to yield 3.832 percent, from 3.777 percent late on Friday.

The greenback inched lower against a basket of world currencies after touching a five-week high, while Turkey’s impending election run-off sent the lira to a near record low.

The dollar index fell 0.2 percent, with the euro up 0.21 percent to $1.0871.

The Japanese yen weakened 0.31 percent versus the greenback at 136.17 per dollar, while Sterling was last trading at $1.2507, up 0.40 percent on the day.

Oil prices rose on the prospect of tightening supplies due to OPEC+ production cuts and U.S. buying for reserves offset concerns over weakening demand.

U.S. crude rose 1.77 percent to $71.28 per barrel and Brent was last at $75.40, up 1.66 percent on the day.

Gold edged higher in opposition to the weakening dollar as the debt ceiling standoff wore on.

Spot gold added 0.2 percent to $2,015.10 an ounce.

Also Read: Asian stocks braced for China data, US Fed speakers

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

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Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

US stocks drop as Federal Reserve hikes interest rate to curb inflation

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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US stocks dropped and Treasuries were little changed as investors parsed the Federal Reserve’s policy statement for clues on the path for interest rates. Chairman Jerome Powell is set to speak at 2:30 pm in New York.

The S&P 500 briefly fell to session lows before fluctuating after the Fed raised rates by a quarter percentage point as expected. The accompanying statement signaled officials expect further increases, though changes in the language sparked optimism that a pause could be in the offing if inflation data continue to cool.

Stocks rallied in January, contributing to an easing of financial conditions, as investors speculated signs of cooling inflation had brought the central bank closer to the end of its hiking cycle. But in a sign that officials may soon debate when to halt its increases, the committee said the “extent of future increases” in interest rates will depend on a number of factors including cumulative tightening of monetary policy.

It had previously tied the “pace” of future increases to those factors.

Also Read: US Federal Reserve set to hike interest rates at the slowest pace in a year

“I see no signs yet that the Fed is open to 2023 rate cuts. I’m not sure the Fed is even trying for a soft landing. While they would never say so, they might prefer the restorative aspects of a recession and a proper bear market,” said Bill Zox, portfolio manager at Brandywine Global.

After Wednesday’s announcement, investors will turn focus on when the Fed will pause its rate hikes, said Richard Flynn, managing director at Charles Schwab UK.

Meanwhile, inflation in the euro area slowed more than economists’ expectations in January, according to a report. The core measure remained sticky, however, suggesting a heated debate to come at the European Central Bank over how much more interest rates must rise. The central bank is expected to lift its policy rate by 50 basis points on Thursday.

“Headline inflation continues to fall across the eurozone but core inflation, which strips out food and energy, flatlined,” said John Leiper, Chief Investment Officer at Titan Asset Management. “Price pressure, particularly in the services sector, will remain elevated for some time. Given the economy is holding up far better than predicted we expect the ECB to hike interest rates again on Thursday by a widely anticipated 50 basis points.”

Also Read: Adani Enterprises calls off its Rs 20,000 crore FPO

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Wall Street falls as US inflation slows but remains hot

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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A choppy day of trading on Wall Street ended with stocks broadly lower on Friday, after a new report showed that inflation is slowing less than hoped just days before Federal Reserve officials are expected to raise interest rates again.

The S&P 500 and Nasdaq composite each fell 0.7 percent, while the Dow Jones Industrial Average dropped 0.9 percent. Smaller company stocks fell even more, pulling the Russell 2000 index 1.2 percent lower. The indexes marked their first losing week in the last three.

The US government reported that prices paid at the wholesale level were 7.4 percent higher in November than a year earlier. That’s a slowdown from October’s wholesale inflation rate of 8.1 percent, but it was still slightly worse than economists expected.

“There’s a sense that inflation has plateaued, but that said it’s still sticky and the Fed is most likely going to have to push harder,” said Quincy Krosby, chief equity strategist for LPL Financial.

The nation’s high inflation, along with the Federal Reserve’s economy-crunching response to it, have been the main reasons for Wall Street’s painful tumble this year. Stocks have recovered some of their losses recently, as inflation has slowed since hitting a peak in the summer. But it remains too high, raising the risk the Federal Reserve will have to keep hiking interest rates sharply to get it fully under control.

Treasury yields climbed as traders stepped up bets for how high the Fed will ultimately take interest rates. The central bank has already hiked its key overnight rate to a range of 3.75 percent to four percent, up from basically zero as recently as March.

Its next decision on rates is scheduled for next week, and the general expectation is for it to raise rates by another half of a percentage point.

Friday’s economic data did not sway Wall Street’s expectations on that, not after several Fed officials hinted recently they may step down from their string of four straight hikes of 0.75 percentage points. Such a dial down would mean less added pressure on markets and the economy. Even so, the Fed has said it may still take rates higher than markets expect before taking a pause.

Higher rates hurt the economy by making it more expensive for companies and households to borrow money, which forces them to cut back on spending. If rates go too high, it can cause a recession. They also drag down on prices for stocks and all kinds of other investments.

A separate report on Friday showed US households are paring expectations a bit for inflation in the future. That’s key for the Fed, which wants to prevent a vicious cycle where households rush to make purchases on fears prices will rise further. Such buying activity only fans inflation higher.

Households are forecasting inflation of 4.6 percent in the year ahead, according to the survey by the University of Michigan. That’s the lowest such reading in 15 months, though still well above where it was two years ago. Expectations for longer-run inflation remain stuck in the 2.9 percent to 3.1 percent range where they’ve been for 16 of the last 17 months, at three percent.

Overall sentiment among consumers was also stronger than economists expected, according to the University of Michigan’s preliminary reading. That’s good news for the economy, which gets most of its strength from spending by such consumers. But it can also complicate the Fed’s task. If such spending remains resilient, it could keep up the pressure on inflation.

The last big piece of data on inflation before the Fed’s next decision arrives on Tuesday, when economists expect the consumer price index to show that inflation slowed to 7.3 percent last month from 7.7 percent in October.

“The two most important questions for next year are how fast inflation will drop and how much will it need to drop for the Fed to stop tightening,” foreign-exchange strategists wrote in a BofA Global Research report. “We are concerned markets too optimistic on both.”

Roughly 75% of the stocks in the S&P 500 closed lower Friday, with health care, technology and energy among the sectors that weighed down the market most. The benchmark index fell 29.13 points to 3,934.38. It finished 3.4% lower for the week and is now down 17.5 percent this year.

The Dow fell 305.02 points to 33,476.46, while the Nasdaq slid 77.39 points to 11,004.62. The Russell 2000 dropped 21.63 points to 1,796.66.

The yield on the two-year Treasury, which tends to track expectations for Fed action, rose to 4.36 percent from 4.26 percent just before Friday’s inflation report was released. It was at 4.31 percent late Thursday.

The yield on the 10-year Treasury, which helps dictate rates for mortgages and other loans, rose to 3.58 percent from 3.49 percent late Thursday.

In overseas stock markets, European indexes closed higher after recovering from a pullback following the US inflation report.

Chinese benchmarks rose Friday on reports the government is planning new measures to support the ailing property sector, which has been a severe drag on growth over the past several years.

The relaxation of some of China’s “zero-COVID” rules is also raising hopes the economy will gain momentum, though experts say it will take months for tourism and other business to recover from the disruptions of the pandemic. It historically has been a major source of the global economy’s growth.

Also Read: Here’s why 2023 may not be a very exciting year for investors in India’s bluechip stocks

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Wall Street drops as Powell signals Fed not close to done

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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US stocks ended sharply lower on Wednesday, as comments from Fed Chair Jerome Powell shattered initial optimism over a Fed policy statement that raised interest rates by 75 basis points but signaled that smaller rate hikes may be on the horizon.

In a volatile trading session, equities initially moved higher in the wake of the hike by the Fed, the fourth straight increase from the central bank of that magnitude as it attempts to bring down stubbornly high inflation.

The target federal funds rate was set in a range between 3.7 percent and four percent, but the impact of the hike was initially tempered by new language that suggested the central bank was mindful of the effect its outsized rate hikes have had on the economy.

Investors had been widely anticipating a 75-basis point rate hike, while hoping the Fed would signal a willingness to begin downsizing the rate hikes at its December meeting.

However, comments from Fed Chair Jerome Powell that it was “very premature” to be thinking about pausing rate hikes sent stocks sharply lower.

“It is one speech, maybe it is a moment of frustration. I don’t think he should have done it the way he did this. But I understand why he did it, and in the big picture of things, he is doing the right thing right now,” said Stephen Massocca, senior vice president at Wedbush Securities in San Francisco.

“Ultimately this will be good for the economy and good for the market.”

The Dow Jones Industrial Average (.DJI) fell 505.4 points, or 1.5 percent, to 32,147.8, the S&P 500 (.SPX) lost 96.4 points, or 2.5 percent, to 3,759.7 and the Nasdaq Composite (.IXIC) dropped 366.1 points, or 3.4 percent, to 10,524.8.

After a strong rally in October that saw the Dow Industrials post their biggest monthly percentage gain since 1976 and the S&P rally about eight percent, the three major indexes on Wall Street have no fallen for three straight session. Wednesday’s decline was the largest percentage drop for the S&P 500 since October 7.

The S&P 500 had been modestly lower prior to the policy announcement, as the ADP National Employment report showed US private payrolls increased more than expected in October, giving more reason to the Fed to continue an aggressive path of rate hikes.

The private payrolls report came on the heels of data on Tuesday that showed a jump in US monthly job openings, indicating labor demand remained strong.

Investors will get more looks at the labor market in the form of weekly initial jobless claims on Thursday and the October payrolls report on Friday that will help drive expectations for interest rate hikes.

Volume on US exchanges was 12.8 billion shares, compared with the 11.6 billion average for the full session over the last 20 trading days.

Declining issues outnumbered advancing ones on the NYSE by a 3.4-to-1 ratio; on Nasdaq, a 2.8-to-1 ratio favored decliners.

The S&P 500 posted 22 new 52-week highs and 20 new lows; the Nasdaq Composite recorded 108 new highs and 203 new lows.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Wall Street rallies on economic data, easing geopolitical concerns

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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US stocks jumped to a sharply higher close and Treasury yields touched two-week highs on Wednesday as robust economic data, upbeat corporate guidance and easing geopolitical concerns boosted investor risk appetite.

Front-month crude futures dropped following a report that US stockpiles of crude and gasoline unexpectedly surged last week.

All three major US stock indexes advanced and the tech-laden Nasdaq ended the session at a three-month high, with upbeat forecasts from PayPal and CVS Health Corp fueling investor sentiment.

“It’s about the fundamentals, it’s all about earnings and data,” said Oliver Pursche, senior vice president at Wealthspire Advisors in New York.

Also Read: Oil prices rebound after dropping to lowest in months on weak US demand

“We’ve seen decent earnings, and there was robust economic news, and we had several Fed (officials) reassuring statements that the Fed would be able to bring inflation under control.”

Economic data showed an unexpected acceleration of services activity and a robust increase in factory orders, suggesting that the economy was healthy enough to withstand the hawkish monetary policy from the US Federal Reserve.

St. Louis Fed President James Bullard underscored that hawkishness by reiterating the central bank’s intention to “be tough” on inflation until it cools down to the Fed’s average annual 2 percent target.

US House of Representatives Speaker Nancy Pelosi’s wrapped up a brief visit to Taiwan that had provoked ire from China.

The Dow Jones Industrial Average rose 416.33 points, or 1.29 percent, to 32,812.5, the S&P 500 gained 63.98 points, or 1.56 percent, to 4,155.17 and the Nasdaq Composite added 319.40 points, or 2.59 percent, to 12,668.16.

European stocks closed higher, reclaiming losses suffered in recent sessions as a series of upbeat earnings helped investors look past disappointing eurozone economic data.

The pan-European STOXX 600 index rose 0.51 percent and MSCI’s gauge of stocks across the globe gained 1.01 percent.

Emerging market stocks rose 0.28 percent. MSCI’s broadest index of Asia-Pacific shares outside Japan closed 0.27 percent higher, while Japan’s Nikkei rose 0.53 percent.

A drop in oil prices accelerated after a report from the US Energy Information Administration showed an unexpected surge in US crude and gasoline stocks, which followed the OPEC+ group of crude producers’ announcement that it would increase its production by a mere 100,000 barrels per day.

“Oil is still up 25 percent from the beginning of the year,” Pursche added. “This recent drop is a combined result of that and a reflection that there is going to be an economic slowdown. The market is trying to find equilibrium.”

US crude fell 3.98 percent to settle at $90.66 per barrel, while Brent settled at $96.78 per barrel, down 3.74 percent on the day.

US Treasury yields scaled two-week peaks powered by stronger-than-expected data, which supported recent remarks from Fed officials.

“The hawkish comments out of the Fed, sticking to their intention to raise rates, is moving yields back up,” said Joseph Sroka, chief investment officer at NovaPoint in Atlanta. “The Fed is holding firm on a policy that they’ve articulated.”

Benchmark 10-year notes last rose 11/32 in price to yield 2.70 percent, from 2.74 percent late on Tuesday. The 30-year bond last rose 24/32 in price to yield 2.94 perent, from 2.98 percent late on Tuesday.

The dollar see-sawed, but was last near flat against a basket of world currencies, building on Tuesday’s gains after economic indicators surprised to the upside, which supported the greenback in the wake of recent Fed comments.

The dollar index rose 0.13 percent, with the euro up 0.04 percent to $1.01.
The Japanese yen weakened 0.55 percent versus the greenback at 133.90 per dollar, while Sterling was last trading at $1.21, down 0.22 percent on the day. Gold rose but the safe-haven metal’s gains were held in check by rising Treasury yields.

Spot gold added 0.3 percent to $1,765.06 an ounce.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

View: Looking at the brighter side of Wall Street amid uncertainty

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The performance of the widely tracked US indices, such as the S&P 500 and NASDAQ 100 indices, has been negative since the start of 2022. As of April 30, 2022, they have fallen seven percent and 15 percent respectively.

The recent underperformance has been attributed to all sorts of fears and disappointments, including high inflation, the Ukraine-Russia war, a hawkish Fed, COVID-19, slowing growth and companies missing earnings estimates .

Amid chaos and uncertainty, there may be some overlooked factors, such as:

1. People focusing on missed earnings estimates are actually missing forests for the trees
2. Slowing growth in the US real GDP may be seasonal

Companies missing earnings estimates

Only 55 percent of S&P 500 companies have reported actual results for the January-March period of 2022, as of April 29. Contrary to the negative sentiment, out of reported results, 80 percent of S&P 500 companies reported positive EPS surprise and 72 percent reported positive revenue surprise.

According to Factset, so far, companies have reported earnings growth of 7.1 percent in Q1 2022 vs estimates of 4.7 percent. At a company level, Amazon was the largest detractor to earnings growth for S&P 500 due to a large negative earnings surprise because of a one-time valuation loss adjustment.

Breaking down GDP numbers

The January-March 2022 real GDP in the US shrank 1.4 percent on a sequential basis as against estimates of 1.1 percent growth. This added to the recession fears, yet under the hood, it is interesting to see the real contributors to such change.

The GDP of the October-December period of 2021 was high due to rising inventory levels, which added five percentage points to the overall 6.9 percent sequential growth. Businesses seem to have invested in inventory buildup in anticipation of supply chain issues and strong demand on account of the holiday season.

Post after the first three months of 2022, the inventory level fell and contributed 0.84 percent to the overall declining GDP. The decline in inventory level may not be a cause of concern as it just suggests the consumption of the excess inventory of the last quarter further reflecting robust demand. Additionally, detracting government spending resulted in GDP decline by 0.48 percent. On the positive side, services contributed 1.86 percent, in line with expectations, as consumers started spending on restaurant, tourism, travel etc.

Now that we understood a few reasons why the US markets have underperformed, let us explore some strong fundamentals displayed by the world’s largest economy.

· Rising interest rates may not necessarily punch a hole in consumer wallet

Current, interest payment outgo as a percentage of consumer income is at 9.3 percent, close to lowest level, implying that in a rising interest rate scenario (like today), consumers appear to be in better position to absorb relatively higher interest payments.

· Real wages are above pre-pandemic levels

· Consumer NPA (non-performing assets) ratio at historical lows

· US Corporate is not debt-laden

Conclusion

Equity markets irrespective of geography have always been volatile. As market experts speak, the current global macro events should not be ignored and one should take all investment-related decisions carefully.

Having a holistic view, keeping all the points mentioned above, becomes essential. Moreover, we should not forget the bigger picture and the benefits of having international equity as part of asset allocation.

–The author Mahavir Kaswa is Head of Research-Passive Funds at Motilal Oswal AMC. The views expressed in this article are his own.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Tech stocks-heavy Nasdaq at lowest since Sept 2020 amid global growth concerns

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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US shares tumbled on Tuesday, with the Nasdaq posting its steepest one-day rout since September 2020, while European stocks extended losses for a third session as investors warily awaited US tech earnings and fretted over global growth.

China’s COVID-19 curbs and fears of aggressive US Federal Reserve tightening continued to damp risk appetite and lifted the dollar to new two-year highs. Oil prices rebounded in volatile trading and gold prices rose on safe-haven buying.

The tech-heavy Nasdaq led Wall Street lower, closing at its lowest since late 2020. The Dow Jones Industrial Average fell 2.38 percent to end at 33,240.18 points, while the S&P 500 lost 2.81 percent to 4,175.2. The Nasdaq Composite dropped 3.95 percent to 12,490.74.

Alphabet Inc and Microsoft Corp both fell almost 4 percent ahead of their results after the closing bell. About a third of S&P 500 companies are set to report results this week.[.N]

“There’s a lot of anxiety ahead of the earnings which are coming up Tuesday, Wednesday and Thursday just because if they don’t hold up, then there’s nothing left to hold up the market,” said Thomas Hayes, chairman of Great Hill Capital LLC in New York. The MSCI world equity index fell 13.6 points, or 2.03 percent, to 655.01.

The pan-Europe STOXX 600 index closed lower, with technology stocks down 2.3 percent at six-week lows and banks dropping 2.3 percent. The index had rallied up to 1 percent earlier in the session amid strong earnings from companies including Swiss bank UBS and shipping giant Maersk.

China’s blue-chip index fell another 0.8 percent after its worst day in two years on Monday, even as the central bank vowed to step up prudent monetary policy support, particularly for small firms hit by COVID-19.

Three-fourths of Beijing’s 22 million people lined up for COVID-19 tests as the Chinese capital raced to stamp out a nascent outbreak and avert the city-wide lockdown that debilitated Shanghai for a month.

“There’s a little bit of a growth scare coming in but in our view there won’t be an immediate slowdown to growth or inflation,” said Mike Kelly, head of global multi-asset at PineBridge Investments. But Manishi Raychaudhuri, Asia-Pacific equity strategist at BNP Paribas, said if Chinese lockdowns persisted, it would affect China’s economy significantly, with an impact on global supply chains.

News that Elon Musk had clinched a deal to buy Twitter for $44 billion in cash had buoyed tech stocks on Monday, but shares of the social media platform fell on Tuesday. Tesla slumped 12 percent on concerns Musk may sell some of his stake, contributing more than any other stock to the S&P 500 and Nasdaq’s steep declines.

Also Read: How to stealth-invest in crypto without buying any?

“Tech stocks will stay front-and-center” as earnings progress this week, Deutsche Bank Research analysts said in a note.

TIGHTENING FEARS

Investors also eyed the Federal Reserve meeting next week. Markets have been fretting that an aggressive pace of tightening by the Fed could derail the global economy, which has only just started to recover from the pandemic. The Fed is expected to raise rates by a half a percentage point at each of its next two meetings. [FEDWATCH]

“It is unrealistic to think that the US can raise interest rates in this way without looking at the real economy,” said Carlo Franchini, head of institutional clients at Banca Ifigest, adding he was also worried about hawkish signals in Europe.

The European Central Bank’s Martins Kazaks joined a chorus of policymakers urging a swift exit from stimulus measures, suggesting the bank should raise rates soon, and has room for up to three hikes this year. The ECB will next meet on June 9 where policymakers are expected to put a firm end date on bond buys and provide clearer guidance on interest rates.

US Treasury yields slipped on Tuesday as uncertainties surrounding the war in Ukraine and the Fed’s efforts to bring down inflation kept investors cautious about the future despite better-than-expected economic data.

The yield on benchmark 10-year Treasury notes fell to 2.73 percent. Germany’s 10-year yields, the benchmark of the euro bloc, also fell, trading at 0.802 percent, after falling more than 11 basis points the day before.

In currency markets, the dollar rose 0.63 percent against a basket of rivals to a fresh two-year high.

China’s offshore yuan fell against the dollar, but stayed above Monday’s year-low of 6.6090 after the People’s Bank of China said it would cut the amount of foreign exchange banks must hold as reserves.

Oil prices rebounded on China’s plans to support its economy. Brent crude futures settled up $2.67, or 2.6 percent, at $104.99 a barrel, while U.S. West Texas Intermediate contracts were up $3.16, or 3.2 percent, at $101.70. [O/R]

Spot gold edged up 0.44 percent by 4:42 p.m. EST (2042 GMT) as investors sought safe-haven assets. Gold futures settled up 0.43 percent at $1,901.40 per ounce. Palladium prices rose 1.99 percent after Monday’s steep decline on Chinese demand worries. [GOL/]

Also Read: Trade setup for April 27: Nifty50 reclaims 17,200, but is it out of the woods yet?

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

US stocks tumble amid surging dollar as Fed’s May meet rate hike take spotlight

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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US stocks tumbled on Friday while the US dollar hit a more than two-year high as investors prepared for a bevy of interest rate hikes in a global inflation fight.

All three major Wall Street indices ended down more than 2 percent a day after Federal Reserve Chairman Jerome Powell indicated that the US central bank was preparing a half-point interest rate hike at its May meeting, with more to come.

The Dow Jones Industrial Average closed down 2.82 percent, while the S&P 500 lost 2.77 percent and the Nasdaq Composite dropped 2.55 percent. The MSCI world equity index, which tracks shares in 45 nations, fell 2.46 percent.

Powell drove headlines on Thursday by saying a 50 basis point rate hike is “on the table” at the Fed’s next meeting, adding that it “is appropriate to be moving a little more quickly” to combat inflation.

“Markets are very uneasy about the growing likelihood of a policy error by the Federal Reserve. When a Fed official suggests a 50 basis points hike, markets immediately start trying to price in 75 basis point hikes,” said Jamie Cox, managing partner at Harris Financial Group in Richmond, Virginia.

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The prospect of aggressive hikes was a boon to the U.S. dollar, which surged to a more than two-year high on Friday. The dollar index, which tracks the greenback versus a basket of six currencies, was last up 0.6 percent to 101.18, clearing levels not seen since March 2020.

The dollar’s surge took a toll on fellow safe-haven gold, with spot gold prices falling 0.9 percent to $1,933.94 an ounce. Yields on U.S. Treasury bonds were also on the uptick as traders prepared for higher rates, with short-dated bonds hitting three-year highs in Friday trading.

Two-year note yields, highly sensitive to interest rate moves, rose to 2.789 percent, the highest since December 2018, before dipping lower to 2.697 percent in the afternoon. Benchmark 10-year yields were last at 2.899 percent, after reaching 2.981 percent on Wednesday, also the highest since December 2018.

“We’re repeating the same message from central bankers, and every time each repetition ratchets short interest rates higher,” said Jim Vogel, an interest rate strategist at FHN Financial in Memphis, Tennessee.

Oil was down on the week, as concerns of looming interest rate hikes, weaker global growth and COVID-19 lockdowns in China hurting demand outweighed a potential European Union ban on Russian oil that would tighten supply. [O/R]

Brent crude fell 2 percent at $106.16 a barrel, while US West Texas Intermediate (WTI) crude declined 2.03 percent to $101.69 a barrel.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow