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Wall Street extends losses amid Powell’s higher for longer rate rhetoric

Fed

US stocks fell for the third straight trading day following Fed Chair Jeromy Powell’s hawkish speech. Powell signalled that more rate hikes were needed to tame inflation. Nasdaq fell more than 1% as the tech rally lost steam, with growth sectors underperforming in the S&P 500, while energy stocks rebounded due to a jump in oil prices. The interest rate-sensitive 2-year US bond yield rose 4 basis points to 4.72%, and the yield on the 10-year Treasury was slightly down, deepening the yield inversion and painting a darkened economic outlook. The US dollar index weakened to a one-week low, mirroring the long-dated bond yields, sending up most of the other major currencies and commodity prices. Despite a hawkish Fed, markets doubt whether the hiking cycle can sustain as high rates may strain the banking system and dry up liquidities.

Elsewhere, the UK’s inflation surprisingly stayed at an elevated level of 8.7% and the core inflation rose to a fresh 32-year high of 7.1%, lifting the UK 2-year gilt yield to the highest since June 2008, pressing on the European markets.

In Asia, China’s faltering economic rebound and disappointing rate cuts continued to press on sentiment. But notably, the Japanese benchmark index, Nikkei 225, outperformed broad markets and stabilized at an all-time high level after Warren Buffet raised stakes in five Japanese trading houses.

Futures markets point to a lower open across Asia. ASX 200 futures were down 0.14%, Nikkei 225 fell 0.15%, and Hang Seng Index futures slumped 0.04%.

Price movers:

  • 5 out of 11 sectors in the S&P 500 finished lower, with technology and communication services leading losses, down 1.41% and 1.36%, respectively. The consumer discretionary sector was also down more than 1% due to a slump in Tesla’s shares. The energy stocks rebounded following the oil price’s comeback, and defensive sectors, including utility, consumer staples, and healthcare, also finished higher.
  • EUR/USD soared to 1.0988, the highest since 10 May, as markets priced in a more hawkish ECB and a less hawkish Fed despite Powell’s higher rate reiteration. The yields on the major European government bonds, including German, UK, and France, all climbed following UK’s stubbornly high inflation data.
  • Bitcoin rose to above 30,000 for the first time since mid-April as crypto on the news that BlackRock filed a spot bitcoin ETF to the SEC. Bitcoin soared more than 20% from its low in mid-June after touching a pivotal support of around 24,500.   
  • The WTI futures rose to a two-week high amid softened USD and UK’s sticky inflation data. The crude price, however, still faces the resistance of the 50-day moving average of about 73.

ASX and NZX announcements/news:

  • Fletcher Building Limited (ASX/NZX: FBU) announced the appointment of Sandra Dodds as a non-executive director of the Company effective 1 September 2023.

Today’s agenda:

  • SNB Rate Decision. 


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