Treasury yields, global equities drop sharply

by Jonathan Adams
equities

MSCI’s gauge of stocks across the globe shed 0.92% and stocks on Wall Street ended sharply lower, already weighed down by weakness in tech and other megacap stocks

Treasury yields and a gauge of global equities dropped sharply after the Federal Reserve left interest rates unchanged as expected on Wednesday but hinted it would not cut them until inflation was “moving sustainably” towards its 2% target.

The Federal Reserve took a major step towards reducing rates in coming months in a policy statement that tempered inflation worries with other risks to the U.S. economy and dropped a longstanding reference to possible further hikes in borrowing costs.

The dollar gained against the euro and other major currencies after Fed Chair Jerome Powell at a press conference said that a rate cut in March was not the U.S. central bank’s “base case,” comments that were less dovish than many investors had anticipated.

First and foremost, the Federal Reserve wanted to double down on its inflation fighting credibility, said Michael Arone, chief investment strategist for State Street’s U.S. SPDR business.

“That is a signal to the market that it should not get ahead of itself on the potential for all these rate cuts” that had been priced in to the market, Arone said.

They also wanted to balance that with the notion that they do believe that it will be appropriate to cut rates later in 2024, Arone added.

With no indication of rate cuts soon, futures pared bets for a cut in March to 33.5% from around 90% at year-end 2023 and raised the probability to almost 90% when the Fed meets in May, as per CME Group’s FedWatch Tool.

MSCI’s gauge of stocks across the globe shed 0.92% and stocks on Wall Street ended sharply lower, already weighed down by weakness in tech and other megacap stocks the day after disappointing results from Google-parent Alphabet.

The tech-rich Nasdaq was 2.23% lower, the S&P 500 shed 1.61% and the Dow Jones Industrial Average dropped 0.82%.

In Europe shares gained marginally, with the pan-regional STOXX 600 index earlier closing up 0.01%, lifted by robust corporate updates and strong market performances in Spain and Italy.

The dollar index, which has gained nearly 2% against major currencies this month in its biggest gain since September, slipped earlier against the euro and yen as traders awaited the Fed’s statement. It later gained 0.15%.

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