Global stocks and US index futures dropped as hawkish messages from New Zealand and Australian central banks signaled a prolonged fight against inflation and revived concerns about a deeper economic slowdown.
(Bloomberg) — Global stocks and US index futures dropped as hawkish messages from New Zealand and Australian central banks signaled a prolonged fight against inflation and revived concerns about a deeper economic slowdown.
MSCI Inc.’s benchmark for world equities headed for its first back-to-back losses since March 13. June contracts on the S&P 500 and Nasdaq 100 indexes slipped 0.2% each as traders awaited a private report on US jobs. Europe’s equity benchmark declined for a third day. Gold extended a 13-month high. The two-year Treasury yield rose for the first time in four days and the dollar fluctuated. Nvidia Corp. led chipmakers lower in premarket New York trading after Japan’s decision to join a US alliance to restrict exports to China.
Investors are on the edge as they await data on the US labor market to gauge the extent and length of monetary tightening by the Federal Reserve. While money markets have lowered their wagers on a 25 basis-point hike in the US central bank’s next meeting, interest-rate doves got a rude jolt on Wednesday with the Reserve Bank of New Zealand raising its benchmark rate by twice as much as forecast. The rate hikes, coupled with the turmoil in the US financial system, indicate the world economy may take a deeper hit.
“It’s a lot easier for central banks to clean up after a hawkish error than it is to try and correct a dovish error,” James Athey, investment director at abrdn, said on Bloomberg TV. “If you allow inflation and inflation expectations to become unanchored, that’s an incredibly difficult and painful issue to deal with. If you hike too much in hindsight, then you’ve created a recession that was probably going to be the end result anyway and you can cut rates quickly to deal with that.”
The Reserve Bank of New Zealand surprised markets with a half-point interest rate hike, twice as much as forecast. Governor Adrian Orr said inflation is too high and that expectations for price increases may also remain elevated despite a weaker economy. Meanwhile, Reserve Bank of Australia Governor Philip Lowe pushed back against bets its tightening cycle is ending, saying policymakers still expect a need for higher rates.
The New Zealand dollar and Japanese yen gained against the greenback. A gauge of dollar’s strength swung between gains and losses.
The global equity benchmark headed for a one-week low, led by Japanese and European stocks. Markets in China, Hong Kong and Taiwan were shut for a holiday. The MSCI Asia Pacific Index dropped the most since March 27, with Toyota Motor Corp. and Daiichi Sankyo Co. contributing the most to its losses. The Stoxx Europe 600 Index was dragged by construction and industrial-goods shares.
Nvidia fell 1.3% in premarket New York trading, while Advanced Micro Devices Inc. and ASML Holding NV also dropped. Japan’s decision to join the US and Netherlands in restricting exports of chip-making gear to China is giving the allies powerful new weapons to deploy in the escalating technology war.
Meanwhile, the two-year Treasury yield ticked 5 basis points higher after declining 14 basis points in the US session. Treasuries underwent one of the most turbulent quarters in years in the period through March as traders debated the outlook for inflation amid fears of contagion from the banking sector’s turmoil. Swap contracts downgraded the odds of a quarter-point rate hike at the Fed’s May meeting easing to around 50% from a peak of 70% on Tuesday.
Traders’ desire to hedge against inflation as well as their worries over a US recession continued to push gold higher above the $2,000 mark. The precious metal held its surge to a 13-month high and looked set to test its record price. Bitcoin also rose on Wednesday, trading above $28,500 apiece.
Key events this week:
- Eurozone S&P Global Eurozone Services PMI, Wednesday
- US ADP employment change, Wednesday
- US trade, Wednesday
- US initial jobless claims, Thursday
- St. Louis Fed President James Bullard speaks, Thursday
- US unemployment, nonfarm payrolls, Friday
- Good Friday. US stock markets closed, bond markets close for part of the day
Some of the main moves in markets:
Stocks
- The Stoxx Europe 600 fell 0.2% as of 9:55 a.m. London time
- S&P 500 futures fell 0.2%
- Nasdaq 100 futures fell 0.2%
- Futures on the Dow Jones Industrial Average fell 0.1%
- The MSCI Asia Pacific Index fell 0.5%
- The MSCI Emerging Markets Index rose 0.2%
Currencies
- The Bloomberg Dollar Spot Index was little changed
- The euro was little changed at $1.0947
- The Japanese yen rose 0.2% to 131.46 per dollar
- The offshore yuan was little changed at 6.8797 per dollar
- The British pound fell 0.1% to $1.2484
Cryptocurrencies
- Bitcoin rose 1.1% to $28,556.15
- Ether rose 1.7% to $1,910.29
Bonds
- The yield on 10-year Treasuries advanced two basis points to 3.36%
- Germany’s 10-year yield advanced four basis points to 2.29%
- Britain’s 10-year yield advanced six basis points to 3.49%
Commodities
- Brent crude fell 0.1% to $84.85 a barrel
- Spot gold rose 0.2% to $2,024.71 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Alice Atkins and Tassia Sipahutar.
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