A drop in tech shares drove US equity indexes lower, while Treasuries retreated after a surprise Bank of Canada rate increase fueled bets the Federal Reserve is not done with its own tightening.
(Bloomberg) — A drop in tech shares drove US equity indexes lower, while Treasuries retreated after a surprise Bank of Canada rate increase fueled bets the Federal Reserve is not done with its own tightening.
The tech-heavy Nasdaq 100 fell more than 1%, with the likes of Alphabet Inc. and Microsoft Corp. off at least 2.5%. Megacap tech companies had powered the S&P 500 to the brink of a bull market before Wednesday’s pullback. The small-cap Russell 2000 added more than 1% for a second day after weeks of underperformance.
Yields on the policy-sensitive two-year rose more than 8 basis points to 4.56% as traders drove up bets for a quarter point hike in US interest rates by July.
“You could see a little bit of a pullback because of the froth in the market,” Seema Shah, chief global strategist at Principal Asset Management, told Bloomberg Television. “If you don’t get a recession sooner, the later it is, the harder it becomes. You want to get this out of the way.”
Expectations of higher interest rates for longer, in order to combat inflation, are weighing on tech shares. Policy decisions are due from the Federal Reserve and the European Central Bank next week, with the Fed signaling it may pause rate hikes in June before resuming them later.
“In marked contrast to the Fed, the Bank of Canada seems comfortable going into a meeting without its rate decision presignaled to the market,” said Deutsche Bank strategist Alan Ruskin.
He expects a “hawkish hold” as the more likely decision from the US central bank. “In part because of the meeting’s timing, coming both before the May labor market data, and, the Federal Reserve’s June FOMC, that favors a ‘skip’ decision,” he wrote in a note to clients.
Read more: Treasury Yields Nudging Higher Shows Fed in Pause-and-Hike Mode
In currency markets, Turkey’s lira slumped about 7% to a record low against the dollar amid increasing signs that policy makers may be scaling back interventions to support the currency. President Recep Tayyip Erdogan’s appointment of former Merrill Lynch strategist Mehmet Simsek as his new Treasury and finance minister has sparked expectations of a return to more orthodox monetary policy and raised the prospect of reduced intervention in markets.
Elsewhere, gold tumbled. Bitcoin slid in the wake of a sweeping crackdown by US regulators. And oil gained, driving energy shares higher.
Key events this week:
- Eurozone GDP, Thursday
- Rate decisions in India, Peru, Thursday
- Japan GDP, Thursday
- US wholesale inventories, initial jobless claims, Thursday
- China PPI, CPI, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 fell 0.4% as of 2:42 p.m. New York time
- The Nasdaq 100 fell 1.5%
- The Dow Jones Industrial Average rose 0.2%
- The MSCI World index rose 0.3%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at $1.0699
- The British pound rose 0.1% to $1.2438
- The Japanese yen fell 0.4% to 140.17 per dollar
Cryptocurrencies
- Bitcoin fell 1.7% to $26,494.48
- Ether fell 1.4% to $1,850.64
Bonds
- The yield on 10-year Treasuries advanced 13 basis points to 3.79%
- Germany’s 10-year yield advanced eight basis points to 2.46%
- Britain’s 10-year yield advanced four basis points to 4.25%
Commodities
- West Texas Intermediate crude rose 1% to $72.47 a barrel
- Gold futures fell 1.2% to $1,958 an ounce
This story was produced with the assistance of Bloomberg Automation.
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