Treasuries Steady, Stocks Fall Ahead of Fed Minutes: Markets Wrap

(Bloomberg) — Treasuries halted a sell-off as investors spent minutes looking ahead to the Federal Reserve before extending a risk-off move on bets on higher interest rates for longer. Equities and US index futures fell lower.

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Contracts on the S&P 500 and Nasdaq 100 indices each fell at least 0.1% after the underlying indices posted their biggest one-day slump in two months. Key US yields fell after rising to new 2023 highs on Tuesday. Asian and European stocks fell on losses in technology and commodities stocks. The dollar was slightly higher and oil futures fell.

The sell-off in stocks has intensified amid growing signs that the world’s central banks are far from done with their battle against inflation, underlined by successive aggressive remarks from Fed officials last week. Rising geopolitical tensions and earnings shocks further sour the mood and outweigh any optimism about China’s reopening. US central bankers will publish minutes of their January 31-February. 1 meeting on Wednesday at 2 p.m. Eastern time, which could show how many of them see the need for bigger rate hikes.

US short-term interest rates fell more than long-term interest rates. Two-year yields fell 5 basis points from their highest level since early November. Its 10-year counterpart was 2 basis points lower. Australian yields cut gains after weaker-than-expected wage growth data, which also weighed on the Australian dollar.

The European Stoxx 600 index is heading for a second-day loss. Lloyds Banking Group Plc fell and weighed on the FTSE 100 index after its 2023 results and outlook came in below analysts’ estimates despite announcing a £2bn ($2.4bn) share buyback. Mining company Rio Tinto Plc fell after it reported lower-than-expected earnings and cut its dividend due to weak demand for metals in China.

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Everywhere you see disappointing profit forecasts. Walmart Inc. reported weak earnings prospects that fell short of analyst estimates, ushering in another rocky year for the world’s largest retailer. Home Depot Inc. also predicted a drop in profits. Only 68% of S&P 500 companies reporting results this season have beaten estimates, compared to about 80% in recent quarters.

Tuesday’s move in the US marked a shift in perceptions of tariffs. Investors are expecting the federal funds rate to rise to about 5.3% in June. That compares to an observed spike of 4.9% just three weeks ago and follows incendiary rhetoric from central bank officials over the past week.

BlackRock Investment Institute does not see US inflation as on track to return to policy targets. “We think investors are realizing that continued core inflation could lead the Fed to hike rates further – and hold them longer – than markets expected,” strategists including Wei Li and Scott Thiel wrote in a note.

The New Zealand dollar rose against the greenback after the central bank hiked rates by 50 basis points. While the increase marks a setback from previous increases, policymakers still see higher rates ahead.

A rocky geopolitical outlook hasn’t helped. President Vladimir Putin said Russia will suspend its compliance with the New START nuclear weapons treaty with the US, a decision Secretary of State Antony Blinken called “irresponsible.” President Joe Biden hit back at Putin, saying he would never win his war in Ukraine.

Oil extended its longest streak of losses this year, scrapping West Texas Intermediate contracts for a sixth day. The prospect of more aggressive rate hikes by the Fed to quell inflation has kept prices in check despite growing signs of a robust recovery in China following the end of Covid Zero.

Main events this week:

• US MBA Mortgage Applications, Wednesday

• Federal Reserve releases minutes from its last policy meeting on Wednesday

• Eurozone CPI, Thursday

• US GDP, first jobless claims, Thursday

• Atlanta Fed President Raphael Bostic speaks Thursday

• BOJ Governor Kazuo Ueda will appear before Japan’s lower house of parliament on Friday

• US PCE deflator, personal spending, new home sales, University of Michigan consumer confidence, Friday

• Russia’s invasion of Ukraine marks its one-year milestone on Friday

Some of the major movements in markets:

Shares

• The Stoxx Europe 600 was down 1% from 8:46am London time

• S&P 500 futures fell 0.1%

• Nasdaq 100 futures fell 0.2%

• Futures on the Dow Jones Industrial Average fell 0.1%

• The MSCI Asia Pacific Index fell 1.3%

• The MSCI Emerging Markets Index fell 1.3%

Currencies

• The Bloomberg Dollar Spot Index rose 0.1%

• The euro was little changed at $1.0646

• The Japanese yen rose 0.1% to 134.85 per dollar

• The offshore yuan fell 0.1% to 6.9028 per dollar

• The British pound fell 0.3% to $1.2080

Cryptocurrencies

• Bitcoin fell 1.1% to $23,921.66

• Ether fell 0.8% to $1,628.99

Bonds

• The yield on 10-year government bonds was little changed at 3.94%

• German 10-year yields rose by two basis points to 2.55%

• UK 10-year yields rose four basis points to 3.65%

Raw materials

This story was created with the help of Bloomberg Automation.

–With assistance from Richard Henderson, Akshay Chinchalkar and Tassia Sipahutar.

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