(Bloomberg) — Stocks dropped and the dollar rallied after a wave of rate hikes from central banks this week, with the Federal Reserve and the European Central Bank warning of more pain to come.
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The S&P 500 fell more than 2%, closing at its lowest level in more than a month. The tech-heavy Nasdaq 100’s losses exceeded 3%, with yield-sensitive stocks taking a hit. Equities in Europe also closed Thursday lower after the ECB’s upward revision to 2024 inflation projections.
Oil snapped a three-day rally. Commodities from oil to copper were under pressure as fears of a global economic slowdown and waning demand mounted. The dollar climbed the most since September as investors sought haven assets.
Risk assets have been on the back foot since Fed Chair Jerome Powell reiterated his hawkish stance on Wednesday and policymakers signaled a peak rate that was above market expectations. The ECB and the Bank of England were among major central banks that followed the Fed with hikes of half a percentage point. But the BOE tempering its pace of monetary tightening was interpreted as a sign that rates could peak at a lower level than expected, which pushed the pound to its worst day versus the dollar in six weeks.
While the Fed and ECB also slowed the tempo of their hikes, Powell and ECB President Christine Lagarde hammered home their resolve to remain persistent as they battle inflation. This didn’t sit well with investors, who hoped for a dovish shift in tone.
Traders also digested a bevy of US data Thursday showing the economy cooling, even as the labor market stays strong. Softening in the labor market remains a big target for the Fed.
“The pullback in the market today — we aren’t surprised by it,” Nadia Lovell, UBS Global Wealth Management senior US equity strategist, told Bloomberg Television on Thursday. “This is a market that has traded on the hope that the Fed will not do what they say they will do. Yesterday they sent a clearly different message.”
Key events this week:
Some of the main moves in markets:
Stocks
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The S&P 500 fell 2.5% as of 4:03 p.m. New York time
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The Nasdaq 100 fell 3.4%
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The Dow Jones Industrial Average fell 2.2%
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The MSCI World index fell 0.2%
Currencies
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The Bloomberg Dollar Spot Index rose 1%
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The euro fell 0.6% to $1.0623
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The British pound fell 2% to $1.2176
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The Japanese yen fell 1.6% to 137.68 per dollar
Cryptocurrencies
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Bitcoin fell 2.3% to $17,423.09
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Ether fell 3% to $1,271.7
Bonds
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The yield on 10-year Treasuries declined three basis points to 3.45%
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Germany’s 10-year yield advanced 14 basis points to 2.08%
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Britain’s 10-year yield declined seven basis points to 3.24%
Commodities
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West Texas Intermediate crude fell 1.5% to $76.12 a barrel
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Gold futures fell 1.7% to $1,787 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Isabelle Lee and John McCorry.
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