Global stocks fall, U.S. yields rise on higher interest rate outlook

Reuters | February 21, 2023

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By Chibuike Oguh

NEW YORK (Reuters) -Global equity markets fell while U.S. Treasury yields hit new highs on Tuesday as investors weighed the prospects of a longer-than-anticipated stiff monetary policy stance by the Federal Reserve following continued strong economic data.

Market sentiment has remained bearish after Fed officials signaled last week that the U.S. central bank was likely to keep raising interest rates for longer than was previously forecast in its bid to tame inflation.

The Fed will release the minutes of its last meeting on Wednesday, which will give traders a glimpse of how high officials are projecting interest rates will go after recent data showed stronger-than-expected U.S. employment and consumer prices.

A survey released on Tuesday showed that U.S. business activity unexpectedly rebounded in February, reaching its highest level in eight months, and reaffirming the resilience of the U.S. economy despite the Fed’s monetary policy actions.

Benchmark 10-year note yields jumped to the highest since Nov. 10 and were at 3.9584%. The yield curve between two-year and 10-year notes remained deeply inverted at minus 78 basis points, indicating heightened concerns over an impending recession.

“The Fed has a conundrum because as long as people are working, they spend money on specific things that’s rotating like travel, home improvement, etc.,” said Tom Plumb, portfolio manager at Plumb Balanced Fund in Madison, Wisconsin.

“Anytime the market tries to convince itself that the Fed will take its foot off the brakes sometime soon, they get slapped with reality that it’s probably not going to happen for the next six months or so,” Plumb added.

The MSCI world equity index, which tracks shares in 50 countries, was down 1.59%. European stocks fell as much as 1% before clawing back some of their losses, and closed down 0.19%.

On Wall Street, all three major indexes ended lower, led by selloffs in technology, consumer discretionary, industrials and financial stocks. The Dow Jones Industrial Average fell 2.06% to 33,133.34, the S&P 500 lost 2.01% to 3,997.39 and the Nasdaq Composite dropped 2.50% to 11,492.55.

Oil prices slipped in a volatile session as persistent concerns about global economic growth outweighed supply curbs and prompted investors to take profit on the previous day’s gains.

Brent crude settled 1.2% lower at $83.05 per barrel, while the U.S. West Texas Intermediate crude (WTI) for March, which expires on Tuesday, fell 0.2% to $76.16 per barrel. The second-month contract slipped 0.38% to $76.16 a barrel.

The dollar rose against most major currencies amid data showing the strengthening of the U.S. economy. The dollar index was trading up at 0.289%. The euro was down 0.37% at $1.0642 as it came under pressure after data showed euro zone manufacturing activity deteriorated.

Gold prices dropped as the dollar edged higher and bond yields rose. Spot gold dropped 0.4% to $1,834.50 an ounce, while U.S. gold futures fell 0.32% to $1,834.50 an ounce.

(Reporting by Chibuike Oguh in New York; Editing by Sharon Singleton and Matthew Lewis)

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