- Powell signals a return to big interest rate hikes
- Traders’ prices increased by 50 basis points
- The 2-year German Bund yield is the highest since 2008
LONDON, SINGAPORE March 8 (Reuters) – Stocks fell, the dollar hit a multimonth peak and U.S. and German short-term bonds closed at their highest levels since at least 2008 as Federal Reserve Chairman Jerome Powell raised rates again. Inflation Control Schedule.
MSCI’s broadest index of global shares (.MIWO00000PUS) fell 0.3% ahead of key U.S. jobs data on Friday. Futures on Wall Street signaled a steady start after Europe’s Stoxx 600 stock index fell 0.3% and the S&P 500 index fell 1.5% on Wednesday.
MSCI’s gauge of world shares was up 4% for the year as some investors attributed optimism to strong economic data in the US and the euro zone. This view is at odds with market revisions of interest rate expectations and bond market signals that aggressive monetary tightening is raising recession risks.
“There are a lot of mixed signals out there,” said Eren Osman, managing director of wealth management at Arbuthnot Latham, who said he was currently reluctant to take “large weight or overweight” positions in any major asset class.
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The Fed may need to raise interest rates more than previously expected in response to strong growth in the world’s largest economy, Powell told Congress on Tuesday, the first day of his semiannual, two-day monetary policy testimony.
“If the totality of the data indicates that faster tightening is needed, we will be prepared to increase the pace of rate hikes,” Powell said.
U.S. employers added 500,000 new workers in January, stoking inflation fears, while economists polled by Reuters expected Friday’s official nonfarm payrolls report to show another 203,000 positions were added in February.
“The employment number is very important,” said Patrick Spencer, vice president of equities at RW Baird. “If you get another hot number, say 300,000 (new jobs) or more, the market will worry.”
US Treasury yields continued to rise on Wednesday, with the two-year yield, which tracks interest rate expectations, briefly touching 5.08% — its highest level since 2007.
Germany’s two-year bond yield meanwhile touched 3.367%, the highest level since 2008.
Markets now have a 70% chance of a 50 basis point hike at the Fed’s March 21-22 policy meeting, up from 30% a day earlier, according to CME’s FedWatch tool.
After a series of jumbo hikes last year, the Fed raised rates by 25 basis points last month.
The portion of the U.S. Treasury yield curve that measures the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at -107.3 basis points on Wednesday, the deepest since August 1981. Refinitiv data. Such a reversal is considered a reliable bearish indicator.
In currency markets, the dollar index, which measures the U.S. currency against six major rivals, rose 1.3% on Tuesday to a 3-month high of 105.88, its biggest daily gain since September.
The dollar rose 0.2% to 137.90 against the yen in the previous session, from December 15, ahead of the Bank of Japan’s meeting on Thursday and Friday. The Bank of Japan is expected to stick to its ultra-loose monetary policy, although analysts expect it to remove its complex monetary easing tool, known as the yield curve control, sometime this year.
The euro fell 0.11% to $1.0536, hitting a two-month low. Brent crude fell 0.3% to $82.95 a barrel.
(This story has been corrected to show that the Fed raised rates by 25 bps in February and 50 bps in December, in paragraph 5)
Reporting by Naomi Rovnik in London and Ankur Banerjee in Singapore. Editing by Lincoln Feast, Stephen Coates and Simon Cameron-Moore
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