Bond Sell-Off Grows as Federal Reserve Expected to Postpone Interest Rate Reductions: Market Summary

Bond Sell-Off Grows as Federal Reserve Expected to Postpone Interest Rate Reductions: Market Summary

(Bloomberg) — Treasuries extended their sell-off and stocks wavered as traders considered the possibility of smaller interest rate cuts this year from the Federal Reserve.

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Yields on the 10-year Treasury rose to a four-month high of around 4.37%, adding to a 10 basis point jump from Monday, when data showed the U.S. manufacturing sector expanding for the first time times since September 2022. The figure has forced traders to reduce bets on Fed policy easing, with fewer than three rate cuts now planned for this year. They also see a good chance of delaying policy easing, with the likelihood of a June cut briefly falling below 50% on Monday.

The impact spread globally, with UK 10-year yields rising more than 12 basis points and German borrowing costs almost 10 basis points. In stock markets, futures on the S&P 500 slipped 0.3%, while contracts on the rate-sensitive Nasdaq 100 fell 0.5%. European stocks traded almost flat.

Bets on a rate cut could be further reduced if data released Friday showed the U.S. economy continued to add jobs at a healthy pace in March. Fed Chairman Jerome Powell, who is scheduled to speak on Wednesday, may also repeat his message from last week that officials are waiting for more evidence that inflation is under control.

“The Fed is in a tough spot right now because if it eases too soon, it could reignite the economy and inflation comes back, but if it doesn’t ease quickly enough, you’ll get a bigger economic downturn than expected,” Andrew Pease said. , Global Head of Investment Strategy at Russell Investments Ltd. “At the margin, the data noise could convince the Fed to wait beyond June.”

Expectations of a sustained Fed rate hike have kept the dollar near a six-week high against a basket of its Group of Ten peers. The yen also remained in focus, as the Japanese currency slipped further towards the level of 152 per dollar that many traders fear could force authorities to intervene.

Markets are also closely monitoring geopolitical developments, as an Israeli airstrike on the Iranian embassy in Syria sent gold prices to a record high. Oil rebounded above $85 a barrel as the attack added a risk premium to an already tight market.

In emerging markets, the Turkish lira jumped against the dollar after President Recep Tayyip Erdogan indicated his economic team would be allowed to stay the course with orthodox monetary policies, despite the ruling party’s defeat in local elections over the weekend. -end.

Meanwhile, pressure continues to mount on Bitcoin, which lost more than 5% and traded below $66,000, after falling more than 10% from its mid-2000 highs. March. Crypto-related stocks fell in U.S. premarket trading, with Coinbase Global Inc. down 3.7%.

U.S. health insurance stocks were the other big premarket losers after regulators failed to increase payments for private Medicare plans as the industry expected. Humana Inc., with heavy exposure to Medicare, fell 9.2%, while UnitedHealth Group Inc. fell 4.3%.

Key events this week:

  • U.S. factory orders, light vehicle sales, JOLTS job openings, Tuesday

  • Fed’s John Williams, Loretta Mester, Mary Daly and Michelle Bowman speak Tuesday

  • St. Louis Fed President Alberto Musalem takes office Tuesday. He replaces James Bullard.

  • Caixin Chinese Services PMI, Wednesday

  • Eurozone CPI, unemployment, Wednesday

  • Services PMI in Japan, Wednesday

  • ADP Jobs in the United States, ISM Services, Wednesday

  • Fed Chairman Jerome Powell speaks Wednesday

  • The Fed’s Austan Goolsbee, Adriana Kugler and Michelle Bowman also speak Wednesday.

  • Eurozone S&P Global Services PMI, PPI, Thursday

  • First unemployment claims in the United States and job cuts at Challenger, Thursday

  • The Fed’s Loretta Mester, Alberto Musalem, Thomas Barkin, Patrick Harker and Austan Goolsbee will speak Thursday.

  • The European Central Bank publishes the minutes of its March rate decision on Thursday

  • Eurozone retail sales, Friday

  • US unemployment and non-farm payrolls, Friday

  • Fed’s Michelle Bowman, Thomas Barkin and Lorie Logan to speak Friday

Some of the key movements in the markets:

Actions

  • The Stoxx Europe 600 was little changed at 1:12 p.m. London time

  • S&P 500 futures fell 0.4%

  • Nasdaq 100 futures fell 0.5%

  • Dow Jones Industrial Average futures fell 0.5%

  • The MSCI Asia-Pacific index rose 0.5%

  • The MSCI Emerging Markets Index rose 0.7%

Currencies

  • Bloomberg Dollar Spot Index little changed

  • The euro was little changed at $1.0748

  • The Japanese yen was little changed at 151.67 per dollar

  • The offshore yuan was little changed at 7.2626 per dollar.

  • The British pound rose 0.1% to $1.2568

Cryptocurrencies

  • Bitcoin fell 5.9% to $65,663.84

  • Ether fell 5.3% to $3,313.23

Obligations

  • The 10-year Treasury yield rose six basis points to 4.37%

  • The German 10-year yield rose 10 basis points to 2.40%

  • The UK 10-year yield rose 13 basis points to 4.06%

Raw materials

  • Brent crude rose 1.3% to $88.57 a barrel

  • Spot gold rose 0.2% to $2,257.04 an ounce

This story was produced with the help of Bloomberg Automation.

–With help from Charlotte Yang and Chiranjivi Chakraborty.

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