Stocks Drop And Yields Rise With Investors Braced For Fed
On Tuesday, there was a decline in global stocks, while US Treasury yields rose to a high of almost 15 years, with investors braced for another 75 basis points increase in the interest rate by the US central bank.
The two-day policy meeting of the Federal Reserve will come to an end on Wednesday, after which it will announce its decision.
Rate hikes
An 81% chance of a hike of 75 basis points in the interest rate has already been priced in by rate future traders, and they have also considered a 19% possibility of a hike of a full percentage point.
This week will also see the central banks of Japan, Switzerland, Norway and Britain have their own policy meetings.
Earlier on Tuesday, the central bank of Sweden also met and delivered a larger-than-expected interest rate hike of 100 basis points.
This pushed up the rate to 1.75% and the bank also warned of further interest rate hikes to come in the next few months.
Earlier in the day, the yields on 2-year US government bond yields also rose to 3.992%, which are quite sensitive to changes in expectations of monetary policy.
The last time the yield crossed the 4% mark had been back in October 2007. As for 10-year government bond yields, they hit 3.604% before trimming some gains.
The impact
The Fed and other global central banks have adopted an aggressive stance when it comes to combating inflation, but investors are also concerned about the impact on the economy of these higher rates.
Investors remained cautious in terms of making new bets on Wall Street. Market analysts said that investors were just channeling the Fed at this point.
They had ignored all the bad and now all of that is returning, which means people have become pessimistic.
There was a decline recorded in shares of Ford Motor Co. after the automaker disclosed that its supplier costs related to inflation for the current quarter would be higher by $1 billion.
Index performance
There was a 1.09% loss recorded in the pan-European STOXX 600 index on Tuesday, while a 0.85% drop was also seen in the MSCI’s gauge of global stocks.
The Nasdaq Composite recorded a drop of 0.95% which brought it down to 11,425.05, while the S&P 500 shed 1.13% to reach 3,855.93.
The Dow Jones Industrial Average also lost 1.01% for the day to reach 313.45 points. The US dollar recorded gains for the day, moving to a high of two decades.
This was because of investor expectations of another interest rate hike, which would benefit the greenback.
The US dollar index was on course for a weekly gain for the fifth time in the last six weeks, as it rose 0.5% to reach 110.13.
The index had hit a value of 110.79 this month, which it had lost done on June 2002. The Swedish crown had also recorded a rise against the dollar and the euro briefly after its central bank hiked the interest rate.
