Updated at 11:24AM EST
US stocks extended their decline on Thursday, while the dollar tested two-decade highs against its global peers, as investors unpacked a hawkish Fed rate hike and braced for the impact of policy tightening from major central banks around the world.
The Fed’s decision to boost the Fed’s benchmark rate by 75 basis points, to a range of 3% to 3.25%, was largely expected, but Chairman Jerome Powell’s signal, as well as his suggestion that taming inflation is likely to lead to stagnation. , sent stocks sharply lower as trading closed on Wednesday and carried the US dollar to a 20-year high against a basket of its global peers.
“Reducing inflation will likely require a sustained period of economic growth below the trend,” Powell told reporters in Washington. “Nobody knows if this process will lead to a recession or, if so, how significant that recession will be.”
The tough assessment, which included warnings of higher unemployment and further weakness in the housing market, was coupled with a significant upward move in two-year Treasury yields, which rose to 4.152% following Powell’s comments and early on. New York trade.
The move now puts the spread on the benchmark 10-year banknote at around 55 basis points, indicating that traders are seeing an increased chance of a near-term recession even as they see the fed funds rate rise at least 1.25% this year and then reach 4.5 % in early 2023.
“With short-term interest rates rising and the Fed explicitly willing to accept a measurably higher unemployment rate, the yield curve is likely to invert even deeper, with the 2s-10s curve lower than the 50 basis point reversal after the Fed’s September decision. Bell predicted Adams, chief economist at Bank of Comerica in Dallas, expects to reach 70 basis points over the next winter.”
Meanwhile, the US dollar index approached a two-decade peak of 111,409 even after the Bank of Japan moved to intervene in the currency markets in order to boost the yen for the first time since 1998 after its decision to keep interest rates steady.
Masato Kanda, Japan’s Deputy Finance Minister for International Affairs, told reporters in Japan that the government took “decisive measures” in currency markets after the Bank of Japan’s policy decision that kept interest rates unchanged at record lows.
The move triggered the biggest one-day drop in the dollar against the yen since March 2020, pegging the pair at 142.31.
The Bank of Japan’s move was followed by a rate hike from the Norges Bank, which raised the key rate by 50 basis points to 2.25%, and the Swiss National Bank raised 75 basis points. The Bank of England also raised the bank’s key interest rate by 50 basis points to 2.25%.
Stocks in Europe were heading lower in mid-day trading after last night’s heavy selling on Wall Street, with the Stoxx 600 dropping 1.8% in Frankfurt to its lowest in February 2021 and the FTSE 100 down 0.9% following the Bank of England decision in London .
The moves followed a 1.05% drop in the previous MSCI Japan Asia Index as stocks in China remained stuck at four-month lows amid concerns about renewed growth in the world’s second-largest economy.
In the US, the S&P 500 fell by 38 points in the opening hour of trading while the Dow Jones Industrial Average fell by 162. The technology-focused Nasdaq is down 185 points.
In terms of individual stocks, the target (TGT) Shares fell 2.8% after it revealed plans to hire up to 100,000 temporary workers over the holiday season, while introducing its own discount offers, as it looks to grab market share from rival retailer Walmart. (WMT) .
Lennar Corp. (flexible) Shares rose 2.8% after the second-largest US homebuilder reported stronger-than-expected earnings in the third quarter, boosted in part by higher home prices.
Novavax Inc. declined. NVAX rose 9.2% Thursday after analysts at JPMorgan cut their rating and price target on the drugmaker after its decision to cut its near-term sales forecast.