(Bloomberg) — Central bankers continued their forceful push-back against market bets for interest rate cuts, deepening a global selloff across stocks and bonds.
Most Read from Bloomberg
European Central Bank President Christine Lagarde and Governing Council member Klaas Knot warned on Wednesday that aggressive bets on interest-rate cuts aren’t helping policymakers in the battle to subdue inflation. That followed comments on Tuesday from Federal Reserve Governor Christopher Waller, who urged caution on the pace of easing.
Swaps market pricing for a Fed rate cut in March has dropped to around 65% from 80% on Friday, while money markets pushed back bets on the timing of the ECB’s first quarter-point cut to June, from April. German two-year yields — among the most sensitive to changes in monetary policy — rose three basis points to 2.63%.
The Stoxx Europe 600 index slumped more than 1% at the open. All industry sectors were in the red, with real estate and retailers among the hardest hit. Futures on the Nasdaq 100 fell as much as 0.9%. The Treasury two-year yield climbed four basis points to 4.27% and the dollar extended its rally to a fourth day. The CBOE Volatility Index — Wall Street’s “Fear Gauge” — climbed to a two-month high.
Still more evidence that the battle against inflation isn’t over came from the UK, where price increases accelerated unexpectedly for the first time in 10-months, prompting traders to scale back their expectations for rate cuts from the Bank of England this year. Gilts tumbled and the pound gained as traders aggressively trimmed expectations for monetary-policy easing this year.
“Inflation was never going to be a straight line down, as we have seen in the US and Europe,” said Luke Hickmore, investment director at abrdn. “Rates will fall this year but market expectations around when and how much are going to be very volatile.”
Story continues
Meanwhile, fresh concerns about China’s economy added another headwind for equities. Basic resources and luxury-goods stocks were among the biggest decliners in Europe amid worries about slackening demand in a key market.
Hong Kong’s Hang Seng Index tanked nearly 4%. The CSI 300 mainland Chinese benchmark also fell 2.2%. The losses came after official figures showed while China reached its 2023 economic goal, the country’s housing slump has worsened and domestic demand remained listless.
In commodities, oil declined as the drag from a stronger US dollar and broader risk-off tone offset concerns over escalating Middle East tensions, including continued attacks on ships in the Red Sea by Iran-backed Houthi rebels.
Elsewhere, gold was steady after a Tuesday decline of more than 1% to trade around $2,028 per ounce and Bitcoin dropped below $43,000.
Key events this week:
Eurozone CPI, Wednesday
US retail sales, industrial production, business inventories, Wednesday
Fed issues Beige Book survey of regional economic conditions, Wednesday
New York Fed President John Williams speaks, Wednesday
ECB Governing Council member Boris Vujcic speaks at Davos, Wednesday
US housing starts, initial jobless claims, Thursday
Republican presidential primary debate in New Hampshire, Thursday
ECB President Christine Lagarde participates in Davos panel discussion, Thursday
ECB publishes account of December policy meeting, Thursday
Atlanta Fed President Raphael Bostic speaks, Thursday
Canada retail sales, Friday
Japan CPI, tertiary index, Friday
US existing home sales, University of Michigan consumer sentiment, Friday
ECB President Christine Lagarde and IMF Managing Director Kristalina Georgieva speak in Davos, Friday
San Francisco Fed President Mary Daly speaks, Friday
Some of the main moves in markets:
Stocks
The Stoxx Europe 600 fell 1.1% as of 10:22 a.m. London time
S&P 500 futures fell 0.4%
Nasdaq 100 futures fell 0.6%
Futures on the Dow Jones Industrial Average fell 0.4%
The MSCI Asia Pacific Index fell 1.7%
The MSCI Emerging Markets Index fell 2%
Currencies
The Bloomberg Dollar Spot Index was little changed
The euro was little changed at $1.0877
The Japanese yen fell 0.3% to 147.59 per dollar
The offshore yuan was little changed at 7.2184 per dollar
The British pound rose 0.4% to $1.2688
Cryptocurrencies
Bitcoin fell 1.6% to $42,724.98
Ether fell 2.3% to $2,546.6
Bonds
The yield on 10-year Treasuries declined one basis point to 4.05%
Germany’s 10-year yield was little changed at 2.27%
Britain’s 10-year yield advanced seven basis points to 3.86%
Commodities
Brent crude fell 2% to $76.73 a barrel
Spot gold fell 0.2% to $2,024.56 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Pearl Liu, Selcuk Gokoluk and Thyagaraju Adinarayan.
Most Read from Bloomberg Businessweek
©2024 Bloomberg L.P.