NEW YORK/LONDON :A steep sell-off on Wall Street dragged MSCI’s global equities gauge lower on Thursday while U.S. Treasury yields rose, as investor hopes for a Federal Reserve rate cut in December faded after a chorus of hawkish comments from central bank officials.
In currencies, the dollar also fell despite the hawkish statements from multiple Fed officials, after the House of Representatives voted to reopen the U.S. government late on Wednesday and President Donald Trump signed the bill.
Investors had been buying equities in recent sessions in anticipation of a U.S. government reopening after a record 43-day shutdown, which disrupted food benefits for millions, left hundreds of thousands of federal workers unpaid, and snarled air traffic while putting a pause on crucial economic data releases.
However, Trump administration officials dashed hopes for a clearer view of the U.S. economy any time soon.
White House economic adviser Kevin Hassett told Fox News that, while the government will have a jobs number, data on the U.S. unemployment rate for October may never be available because it is dependent on a household survey that was not conducted during the shutdown.
And multiple Fed officials threw cold water on the idea that the central bank would cut rates in December.
Alberto Musalem, who runs the St Louis Federal Reserve Bank, on Thursday reiterated his view that policy is closer to neutral than to modestly restrictive, leaving limited room to ease further without becoming overly accommodative.
Federal Reserve Bank of Cleveland President Beth Hammack said interest rate policy should remain restrictive in order to put downward pressure on still concerning levels of inflation.
And Minneapolis Federal Reserve President Neel Kashkari said he sees mixed signals from the economy. Inflation, running around 3 per cent, was too high, he said, while parts of the labor market “look like they’re under pressure.”
Earlier, San Francisco Federal Reserve President Mary Daly said the risks to the Fed’s two goals are balanced now that it has cut interest rates twice this year. She added that services inflation has not been declining at a steady rate and that there was more concern that labor demand will continue to slow.
All this sent trader bets on a December rate cut tumbling to a 49.6 per cent probability from 62.9 per cent on Wednesday, according to CME Group’s FedWatch tool.
“Markets were counting on a cut, and we may not get it,” said Bob Doll, chief executive and chief investment officer at Crossmark, pointing to cautious Fed comments on the idea of a December easing of rates. “Most of them are putting up warning signs that it’s not a ‘gimme’, just like the Fed Chair told us when he did this presser after the last Fed meeting. In some sense, it’s not new, but people didn’t believe it.”
Anthony Saglimbene, chief market strategist at Ameriprise, said that, along with fading hopes for rate cuts, investors were worried about a continued lack of clarity about the health of the U.S. economy.
“What you’re seeing today is a risk-off assessment. We’re still going to get a cloudy picture on economic data,” Saglimbene said.
And with the market already showing signs of concern about high valuations in heavyweight technology and artificial intelligence-linked stocks, he said it was not surprising to “see investors take a step back from risk, sell down the winners and go into the defensive areas of the market”.
As of 2:45 p.m. on Wall Street, the Dow Jones Industrial Average fell 708.88 points, or 1.47 per cent, to 47,545.04, the S&P 500 fell 108.91 points, or 1.59 per cent, to 6,741.94 and the Nasdaq Composite fell 537.47 points, or 2.30 per cent, to 22,869.43.
MSCI’s gauge of stocks across the globe fell 11.50 points, or 1.14 per cent, to 1,000.28.
EUROPEAN INDEXES CLOSE LOWER AFTER HITTING RECORDS
The pan-European STOXX 600 index closed down 0.61 per cent after hitting a record high earlier, while Europe’s broad FTSEurofirst 300 index finished off 0.66 per cent.
In U.S. Treasuries, prices were down, pushing yields higher, as investors scaled back expectations for imminent rate cuts amid lingering uncertainty over the inflation outlook and stark divisions among Fed policymakers on the trajectory of the U.S. economy and monetary policy.
The yield on benchmark U.S. 10-year notes rose 2.7 basis points to 4.106 per cent, from 4.079 per cent late on Wednesday, while the 30-year bond yield rose 3.7 basis points to 4.6986 per cent. The 2-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, rose 1.9 basis points to 3.585 per cent.
Meanwhile, European financial stability officials were debating whether to create an alternative to Federal Reserve funding backstops by pooling dollars held by non-U.S. central banks, aiming to reduce their reliance on the U.S. under the Trump administration, five officials familiar with the matter told Reuters.
This helped to send the dollar index, which measures the greenback against a basket of currencies including the yen and the euro, down 0.36 per cent to 99.12.
The euro was up 0.41 per cent at $1.164. Against the Japanese yen, the dollar weakened 0.23 per cent to 154.42.
In energy markets, oil futures settled slightly higher after selling off sharply in the previous session, as investors weighed concerns about global oversupply against looming sanctions against Russia’s Lukoil.
U.S. crude settled up 0.34 per cent, or 20 cents, at $58.69 a barrel while Brent settled at $63.01 per barrel, up 0.48 per cent, or 30 cents, on the day.
Gold prices pulled back after hitting a three-week high earlier in the session, amid the broad market sell-off following the reopening of the U.S. government.
Spot gold fell 0.7 per cent to $4,169.10 an ounce. U.S. gold futures fell 0.13 per cent to $4,199.00 an ounce.
