Stocks decline as hopes of quick Fed rate cuts fade

Stocks retreated and the dollar rose after a Federal Reserve policymaker dampened hopes of speedy interest rate cuts from the US central bank. 

Europe’s Stoxx 600 equity index opened around flat, and U.S. equity futures contracts slipped about 0.2% as it became clear central banks will lean against traders’ rate-cut bets. Financial shares rose, led by UBS Group AG, which gained more than 4% as stronger-than-expected client inflows offset losses linked to absorbing Credit Suisse. 

The dollar and Treasury yields rose for a second day, after Minneapolis Fed President Neel Kashkari said it’s too soon to declare victory over inflation. He also said over-tightening monetary policy is preferable to doing too little. 

Traders are waiting to see if that view is echoed in speeches this week from other Fed officials, including Chair Jerome Powell and could subsequently pare their wagers on rate cuts starting by mid-2024. 

“There are a number of risk factors that could prevent inflation from easing in the nice, tidy sort of manner that people who are expecting a central bank pivot would like to see,” said Tom O’ Hara, a portfolio manager at Janus Henderson Investors. High oil prices and signs China is ramping up stimulus for its economy, are possible inflation risks, he added. 

In a sign central banks are not necessarily done hiking interest rates, Australia resumed policy tightening on Tuesday, and raised its inflation forecast.  

Emerging market stocks and currencies broadly retreated in line with the firmer dollar and as a deeper-than-expected decline in Chinese exports highlighted continued slowdown in global trade. South Korea’s Kospi Index lost over 3% after Monday’s rally that was triggered by a short-selling ban. 

The economic growth concerns knocked oil prices lower, outweighing Saudi Arabia and Russia’s extension of supply cuts.

Key events this week:

• China forex reserves, Tuesday
• Eurozone PPI, Tuesday
• US trade, Tuesday
• UBS earnings, Tuesday
• Kansas City Fed President Jeff Schmid and his Dallas counterpart Lorie Logan speak, Tuesday
• Eurozone retail sales, Wednesday
• Germany CPI, Wednesday
• BOE Governor Andrew Bailey speaks, Wednesday
• US wholesale inventories, Wednesday
• New York Fed President John Williams speaks, Wednesday
• Bank of Japan issues October summary of opinions, Thursday
• BOE chief economist Huw Pill speaks on the economy, Thursday
• US initial jobless claims, Thursday
• Fed Chair Jerome Powell participates in panel on monetary policy challenges at the IMF’s annual research conference in Washington, Thursday
• Atlanta Fed President Raphael Bostic and his Richmond counterpart Tom Barkin speak, Thursday
• UK industrial production, GDP, Friday
• ECB President Christine Lagarde participates in fireside chat, Friday
• US University of Michigan consumer sentiment, Friday
• Dallas Fed President Lorie Logan and her Atlanta counterpart Raphael Bostic speak, Friday

Some of the main moves in markets:

Stocks

• The Stoxx Europe 600 was little changed as of 8:16 a.m. London time
• S&P 500 futures fell 0.2%
• Nasdaq 100 futures fell 0.2%
• Futures on the Dow Jones Industrial Average fell 0.3%
• The MSCI Asia Pacific Index fell 1.4%
• The MSCI Emerging Markets Index fell 0.9%

Currencies

• The Bloomberg Dollar Spot Index rose 0.3%
• The euro fell 0.2% to $1.0696
• The Japanese yen fell 0.3% to 150.48 per dollar
• The offshore yuan fell 0.1% to 7.2924 per dollar
• The British pound fell 0.2% to $1.2316

Cryptocurrencies

• Bitcoin fell 0.2% to $34,968.64
• Ether was little changed at $1,893.95

Bonds

• The yield on 10-year Treasuries was little changed at 4.64%
• Germany’s 10-year yield was little changed at 2.74%
• Britain’s 10-year yield declined three basis points to 4.35%

Commodities

• Brent crude fell 1.4% to $83.99 a barrel
• Spot gold fell 0.5% to $1,968.03 an ounce

This story was produced with the assistance of Bloomberg Automation.