Stocks sink as Powells tone boosts rate-hike bets
Stocks slumped after Federal Reserve Chair Jerome Powell weighed an earlier end to bond tapering, with traders boosting their wagers on the pace of interest-rate hikes.
Those bets pushed the Treasury curve to its flattest level since the early days of the pandemic, with the premium of the 30-year rate over the five-year yield tumbling. Powell also told a Senate banking committee that inflation can no longer be considered "transitory." Major equity benchmarks sank more than 1.5%, while the Cboe Volatility Index extended its biggest monthly surge since February 2020.
Money markets now show close to 59 basis points of hikes -- more than two standard quarter-point increases -- priced in by the end of 2022. They had been showing closer to 50 basis points at the close of trading Monday. The first full hike remains priced for July. Fed officials have consistently said they want to wrap up the taper before increasing borrowing costs from near zero -- where they've been since the onset of the pandemic.
Powell, in his opening remarks, said that the recent rise in Covid-19 cases and the emergence of the omicron variant pose "downside risks to employment and economic activity and increased uncertainty for inflation." But during the following question-and-answer period, he focused more on the accumulating evidence of elevated prices since officials met Nov. 2-3.
"Investors may have expected Powell to run for cover as the omicron variant threatens growth," said Mike Bailey, director of research at FBB Capital Partners. "However, he did an about-face and signaled faster tapering, spooking markets."
The current generation of Covid-19 vaccines probably will still protect against severe disease in people infected by the omicron variant, according to BioNTech SE's chief. Moderna Inc. executives said earlier that the strain's many mutations suggest new shots will be needed. The University of Oxford, which developed a vaccine with AstraZeneca Plc, said there's no evidence existing vaccines won't provide some protection against the new variant.
Final sales for Cyber Monday fell short of estimates as scarce inventory kept shoppers from breaking out their credit cards at the start of the holiday shopping season. They spent $10.7 billion this year, according to Adobe Inc., less than the $10.8 billion in 2020, missing Adobe's projection of $11.3 billion.
Stocks:
- The S&P 500 fell 1.6% as of 12:30 p.m. New York time.
- The Nasdaq 100 fell 1.6%.
- The Dow Jones Industrial Average fell 1.7%.
- The MSCI World index fell 1.3%.
Currencies:
- The Bloomberg Dollar Spot Index fell 0.1%.
- The euro was little changed at $1.1295.
- The British pound fell 0.5% to $1.3251.
- The Japanese yen rose 0.3% to 113.20 per dollar.
Bonds:
- The yield on 10-year Treasuries declined four basis points to 1.46%.
- Germany's 10-year yield declined three basis points to -0.35%.
- Britain's 10-year yield declined five basis points to 0.81%.
Commodities:
- West Texas Intermediate crude fell 5.9% to $65.85 a barrel.
- Gold futures fell 0.7% to $1,773.20 an ounce.
