Equity bulls pause as Fed, economy risks dominate
BNN Bloomberg
European stocks fell and U.S. index futures were mixed as an earnings-driven rally stalled amid a deepening supply crunch and coronavirus curbs in China. The Treasury yield curve steepened before the Federal Reserve’s policy meeting.
European stocks fell and U.S. index futures were mixed as an earnings-driven rally stalled amid a deepening supply crunch and coronavirus curbs in China. The Treasury yield curve steepened before the Federal Reserve’s policy meeting.
December contracts on the Dow Jones Industrial Average slipped after the underlying gauge surged past the 36,000 mark on Monday. Russell 2000 contracts rose. The yield on the 30-year U.S. bond widened its gap with the two-year rate by three basis points. Iron-ore futures tumbled on shrinking steal output in China. Tesla Inc. led premarket losses in New York.
Bond and currency markets are bracing for the Fed to announce a tapering of asset purchases as an initial step to eventually raising interest rates to contain inflation. Equity markets, on the other hand, are focusing on earnings growth and valuations. Meanwhile, mixed data on the global economic revival is further clouding the picture as the pandemic is making a comeback in parts of the world.
“We expect volatility in financial markets to remain high as not only the Fed, but other central banks around the world, extract liquidity to combat the rise in inflation,” Lon Erickson, portfolio manager at Thornburg Investment Management, wrote in a note. Despite Fed rhetoric, “we’ve started to see the market price in earlier policy rate moves, perhaps losing confidence in the ‘transitory’ nature of inflation.”
Yields on the two-year and five-year Treasuries fell. Australia abandoned a key pandemic-response tool by dropping its yield control policy, thus joining global central banks inching closer to policy tightening. However, the central bank’s insistence on remaining patient with rate hikes pushed traders to pare back hawkish bets in Australia as well as in global bond markets during European hours.
