US stocks extended losses to fresh session lows as weak economic data rekindled concern over the outlook for growth. Treasuries rallied, while the dollar rebounded on deteriorating risk sentiment.
(Bloomberg) — US stocks extended losses to fresh session lows as weak economic data rekindled concern over the outlook for growth. Treasuries rallied, while the dollar rebounded on deteriorating risk sentiment.
Both the S&P 500 and Nasdaq 100 fell at least 1%, with the tech-heavy gauge reversing gains of more than 1%. Earlier, stocks rallied as Treasury yields fell on bets weak data would prompt the Federal Reserve will downshift its tightening policy. Two Fed officials, however, repeated calls for more hikes even after further signs the economy was softening.
Growth in producer prices slid more than expected last month, and the drop in retail sales exceeded estimates, according to reports released Wednesday. Meanwhile, business equipment production slumped, with a decline in factory output wrapping up the weakest quarter for manufacturing since the onset of the pandemic.
In corporate news, Microsoft Corp. said it plans to cut 10,000 jobs, taking steps to cope with an increasingly bleak outlook. Bank of America Corp. started telling executives to pause hiring except for the most vital positions.
“While risk assets have had a positive start to 2023, with investors encouraged by signs of fading inflation and a swift reopening in China, it remains possible that the rally is a ‘head fake,’ and that economic data will ultimately disappoint,” Mark Haefele, chief investment officer at UBS Global Wealth Management, wrote. “The lagged effect of higher rates could represent a greater drag on growth than expected.”
Treasuries rose across the curve, with the 10-year yield dropping as much as 17 basis points to 3.37%. Money markets are betting the Fed will conclude one of its most aggressive hiking cycles by the middle of the year, with traders positioning for the upper bound of the fed funds target range to peak below 4.9%, compared with the current level of 4.5%.
Read: Federated’s Gallo Says Return of ‘Typical’ Recession Helps Bonds
While markets price in a step down in the rate-hiking cycle, two closely followed Fed hawks repeated calls for more increases. St. Louis Fed President James Bullard said policy is “almost” in restrictive territory but not quite.
Policy has to stay on the “tighter side in 2023,” Bullard said in an online Wall Street Journal interview, noting that he penciled in a forecast for a rate range of 5.25% to 5.5% by the end of this year in the Fed’s dot plot of projections.
Cleveland Fed President Loretta Mester said in an interview with The Associated Press published Wednesday that the Fed needs “keep going” but didn’t say how big a rate increase she favored when officials meet Jan. 31-Feb. 1.
“We expect 2023 to slowly see a shift of the market worrying about inflation to worrying about the economy, which is more of a ‘hard landing’ narrative,” said Jonathan Krinsky, chief market technician for BTIG. “Should we close lower today, and should tech/growth underperform despite the meaningful move lower in nominal and real rates, we could be in the early innings of the handoff from the Fed to the economy.”
Read: Heavily Cut Estimates Don’t Reflect Full Gloom: Earnings Watch
The yen dropped as much as 2.6% against the dollar after the Bank of Japan doubled down on defending their stimulus, defying intense market speculation. The currency later traded down 0.5%.
Key events this week:
- Federal Reserve releases Beige Book, Wednesday
- Fed speakers include Raphael Bostic, Lorie Logan and Patrick Harker, Wednesday
- US housing starts, initial jobless claims, Philadelphia Fed index, Thursday
- ECB account of its December policy meeting and President Christine Lagarde on a panel in Davos, Thursday
- Fed speakers include Susan Collins and John Williams, Thursday
- Japan CPI, Friday
- China loan prime rates, Friday
- US existing home sales, Friday
- IMF’s Kristalina Georgieva and ECB’s Lagarde speak in Davos, Friday
Here are some of the main market moves:
Stocks
- The S&P 500 fell 1.1% as of 1:29 p.m. New York time
- The Nasdaq 100 fell 1%
- The Dow Jones Industrial Average fell 1.3%
- The MSCI World index fell 0.6%
Currencies
- The Bloomberg Dollar Spot Index rose 0.1%
- The euro was little changed at $1.0793
- The British pound rose 0.4% to $1.2337
- The Japanese yen fell 0.4% to 128.67 per dollar
Cryptocurrencies
- Bitcoin fell 1.6% to $20,985.17
- Ether fell 1.9% to $1,550.75
Bonds
- The yield on 10-year Treasuries declined 16 basis points to 3.39%
- Germany’s 10-year yield declined seven basis points to 2.02%
- Britain’s 10-year yield declined one basis point to 3.31%
Commodities
- West Texas Intermediate crude fell 0.2% to $80.04 a barrel
- Gold futures fell 0.1% to $1,907.10 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Richard Henderson, Isabelle Lee, Srinivasan Sivabalan and Vildana Hajric.
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