US equity-index futures and European stocks declined after the Federal Reserve rebuffed expectations for a dovish tilt and said interest rates will go higher for longer.
Contracts on the S&P 500 and Nasdaq 100 gauges fell at least 1.1% each. Demand for haven assets sent the dollar and Swiss franc higher amid a wave of rate hikes from Taiwan to Norway. The euro halted a two-day advance as traders awaited policy decisions from the European Central Bank and Bank of England. Oil slid on signs of increasing supply. Tesla Inc. dropped in premarket New York trading after Elon Musk sold $3.6 billion of shares.
A global rally sparked by softer-than-forecast US inflation came to an abrupt halt on Wednesday after policymakers signaled a peak rate that was far above market expectations and sought to dispel hopes for a rate cut next year. Chair Jerome Powell reaffirmed the central bank won’t back away from its fight against inflation despite mounting fears of job losses and a recession.
“The Fed was more hawkish than markets had expected,” Jack McIntyre, a money manager at Brandywine Global Investment Management, wrote in a note. “They seemingly still want financial markets to tighten further, which essentially means they want lower equity prices.”
An index of the dollar’s strength headed for the biggest gain since Dec. 5. The euro fell from a six-month high, while Britain’s pound declined for the first time in seven days. The ECB and BOE are expected to follow the Fed with half-point hikes.
The Swiss franc held its gain after the nation’s central bank doubled the policy rate to 1% as forecast. China’s yuan fell.
Europe’s equity benchmark, the Stoxx 600, tumbled the most since Nov. 3, dragged by consumer and retail shares. Tesla dropped 2.6% in early New York trading after Chief Executive Officer Musk sold almost 22 million shares of the electric-car maker for $3.58 billion. Western Digital Corp. lost 4.1% as Goldman Sachs Group Inc. recommended selling the stock.
Shorter-dated Treasury yields edged higher, with the two-year rate adding 3 basis points. The 10-year rate was little changed as investors weighed the economic impact of Fed’s hawkishness.
Oil slipped after rallying almost 9% over the previous three sessions as TC Energy Corp. restarted a section of the Keystone pipeline, allowing for some flows to resume on the major conduit.
Key events this week:
- ECB rate decision and ECB President Lagarde briefing, Thursday
- Rate decisions for UK BOE, Mexico, Norway, Philippines, Switzerland, Taiwan, Thursday
- US cross-border investment, business inventories, empire manufacturing, retail sales, initial jobless claims, industrial production, Thursday
- Eurozone S&P Global PMI, CPI, Friday
Some of the main moves in markets:
Stocks
- The Stoxx Europe 600 fell 1.2% as of 10:09 a.m. London time
- Futures on the S&P 500 fell 1.1%
- Futures on the Nasdaq 100 fell 1.3%
- Futures on the Dow Jones Industrial Average fell 0.8%
- The MSCI Asia Pacific Index fell 1.5%
- The MSCI Emerging Markets Index fell 1.3%
Currencies
- The Bloomberg Dollar Spot Index rose 0.6%
- The euro fell 0.6% to $1.0621
- The Japanese yen fell 0.8% to 136.62 per dollar
- The offshore yuan fell 0.5% to 6.9770 per dollar
- The British pound fell 0.7% to $1.2338
Cryptocurrencies
- Bitcoin fell 0.8% to $17,691.21
- Ether fell 1.7% to $1,287.85
Bonds
- The yield on 10-year Treasuries was little changed at 3.48%
- Germany’s 10-year yield declined two basis points to 1.92%
- Britain’s 10-year yield declined eight basis points to 3.24%
Commodities
- Brent crude fell 0.1% to $82.58 a barrel
- Spot gold fell 1.6% to $1,778.12 an ounce
Volatility
- VIX rose 2.74% to 21.72
- VIXmain rose 1.29% to 23.5
