(Bloomberg) — US stocks and Treasuries plummeted as Federal Reserve officials made clear their determination to remain persistent in their fight against inflation and warned of more pain.
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The S&P 500 and the tech-heavy Nasdaq 100 fell for the second straight month. Commodities from oil to copper fell while the dollar posted a two-day decline.
US 10-year Treasury yields rose after St. Louis Fed President James Bullard said policymakers should raise interest rates to at least 5% to 5.25% to curb inflation. He also warned of further financial burdens.
With inflation only beginning to ease and US retail sales rising at the fastest pace in eight months, Fed speakers in recent days have stressed the need to go further to ease price pressures. Bullard’s comments came a day after San Francisco Fed Chair Mary Daly said a pause in rate hikes was “off the table.” Her aggressive tone was echoed by Minneapolis Fed President Neel Kashkari Thursday afternoon.
“The takeaway is that the Fed has long followed the same playbook that they have now,” said Johan Grahn, head of ETFs at Allianz Investment Management. Fed Chair Jerome Powell is persistently repeating his hawkish stance to keep markets in check, so the rally after weaker inflation data wasn’t what central bank officials wanted to see, he said.
“It’s a chicken game right now between the economy, the markets and the Fed,” Grahn said. “And most people, I think, would do well to believe that the Fed could win in the end.”
On Thursday, new data showing weekly jobless claims came below forecast, further underscoring the strength of the job market. US mortgage rates, which posted their biggest weekly decline since 1981, briefly improved sentiment, although Freddie Mac’s chief economist said the housing market still has a long way to go.
Read more: Bullard sets tone for Fed officials signaling hikes will continue
A handful of earnings reports trickled in after markets closed on Thursday. Applied Materials Inc., the largest maker of chip making equipment, issued better-than-expected sales guidance for the current period. Gap Inc., meanwhile, jumped after its quarterly sales and earnings beat Wall Street estimates.
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Meanwhile, European Central Bank policymakers are set to consider a smaller 50 basis point rate hike next month, signaling their concerns for the economy and pushing the euro lower.
The pound fell after Chancellor Jeremy Hunt outlined a £55 billion ($65 billion) package of tax hikes and spending cuts even as the economy slipped into recession. Gilt yields rose.
Important events this week:
Some of the key movements in the markets:
The S&P 500 was down 0.3% as of 4 p.m. New York time
The Nasdaq 100 fell 0.2%
The Dow Jones Industrial Average was little changed
The MSCI World Index fell 0.8%
The Bloomberg Dollar Spot Index rose 0.4%
The euro fell 0.3% to $1.0368
The British pound fell 0.4% to $1.1863
The Japanese yen fell 0.5% to 140.19 per dollar
Bitcoin rose 0.9% to $16,682.04
Ether fell 0.4% to $1,200.56
The 10-year government bond yield rose eight basis points to 3.77%
The 10-year German government bond yield rose two basis points to 2.02%
The 10-year UK government bond yield rose five basis points to 3.20%
West Texas Intermediate Crude fell 4.3% to $81.95 a barrel
Gold futures fell 0.7% to $1,763.50 an ounce
This story was created with the support of Bloomberg Automation.
–Assisted by Peyton Forte and Vildana Hajric.
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