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S&P 500 Drops More Than 2% After Data, Fedspeak: Markets Wrap

(Bloomberg) -- US stocks dropped as fresh data painted a picture of an economy that can handle further Federal Reserve tightening, and concern about the global economy overshadowed the Bank of England’s move to restore calm.

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The S&P 500 fell as much as 2.4% after St. Louis Fed President James Bullard didn’t back down from his hawkish stance and said investors have now understood that they can’t escape additional rate hikes in coming months. Better-than-expected 2Q core PCE and personal consumption numbers on Thursday also paved the path for the central bank to stay aggressive. Weekly jobless claims fell to the lowest since April, showing a persistently tight labor market.

US Treasuries trimmed Wednesday’s gains, with the 10-year yield climbing to around 3.79%. UK gilt yields rose after Prime Minister Liz Truss’s defense of unfunded tax cuts that sent markets into turmoil failed to persuade investors.

Investors are contending with threats posed by discordant moves from central banks over the past few days, with Fed officials adamant on further monetary tightening, the BOE unveiling a plan to support government debt and authorities in Asia trying to prop up weakening currencies.

For markets to stabilize, “investors will need to see convincing evidence that inflation is coming under control, allowing central banks to become less hawkish,” said Mark Haefele, chief investment officer at UBS Global Wealth Management. “This turn, in our view, is still some time away.”

Fed officials haven’t shied away from warning that more rate-hike pain is yet to come, with Cleveland Fed President Loretta Mester echoing the rhetoric that her colleagues reinforced this week. Recession fears persisted as a gap in the government’s two primary measures of US economic activity during the first half of 2022 narrowed. The National Bureau of Economic Research’s Business Cycle Dating Committee uses this metric and other variables to make any recession call.

Separately, the European Commission announced an eighth package of sanctions that would include a price cap on Russia’s oil exports as Russia vowed to go ahead with the annexation of the parts of Ukraine that its troops currently control after UN-condemned votes, putting the Kremlin on a fresh collision course with the US and its allies.

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Key events this week:

Fed’s Mary Daly speak at an event, Thursday

China PMI, Friday

Euro zone CPI, unemployment, Friday

US consumer income , University of Michigan consumer sentiment, Friday

Fed’s Lael Brainard and John Williams speak, Friday

Some of the main moves in markets:

Stocks

The S&P 500 fell 2.4% as of 10:03 a.m. New York time

The Nasdaq 100 fell 3%

The Dow Jones Industrial Average fell 1.9%

The Stoxx Europe 600 fell 1.9%

The MSCI World index rose 1.1%

Currencies

The Bloomberg Dollar Spot Index rose 0.1%

The euro was little changed at $0.9737

The British pound rose 0.8% to $1.0980

The Japanese yen fell 0.3% to 144.58 per dollar

Cryptocurrencies

Bitcoin fell 3.1% to $18,958.67

Ether fell 4.1% to $1,295.64

Bonds

The yield on 10-year Treasuries advanced six basis points to 3.79%

Germany’s 10-year yield advanced 12 basis points to 2.24%

Britain’s 10-year yield advanced 12 basis points to 4.13%

Commodities

West Texas Intermediate crude fell 0.1% to $82.03 a barrel

Gold futures fell 0.5% to $1,661.30 an ounce

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