US Stocks Drop With Fed Policy, China in Focus: Markets Wrap

(Bloomberg) — U.S. stocks fell as investors weighed comments from Federal Reserve officials who remained generally hawkish on the fight against inflation. Investors continued to be weighed down by growing concerns that China may tighten restrictions on the Covid-19 disease after a spate of reported deaths.

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Technology stocks, which are usually more sensitive to interest rates, dragged the S&P 500 lower. The Nasdaq 100 ended the day down 1.1%. Oil emerged from a volatile session almost unchanged after Saudi Arabia denied a report that it was in talks to raise oil output ahead of next month’s OPEC+ meeting. The dollar rose for a third day as investors sought refuge. Treasurys were mixed.

Investors are closely watching what Fed speakers say about the interest rate outlook. While several central bank officials have reiterated in recent days their intention to remain firm until inflation is under control, they differ on how far they will go. On Monday, San Francisco Fed President Mary Daly said officials would need to be mindful of the lags with which monetary policy is transmitted through the economy as they raise rates further. Her Cleveland counterpart, Loretta Mester, said she was open to slowing the pace of rate hikes.

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“This shouldn’t be considered a tipping point or something new,” said Michael Contopoulos, director of fixed income at Richard Bernstein Advisors. “The real key is when the Fed starts cutting rates and/or suspending quantitative easing. That’s nowhere in sight.”

Atlanta Fed President Raphael Bostic, meanwhile, said he favored slowing the pace of interest rate hikes to no more than a 1 percentage point increase to try to ensure a soft landing for the economy. Boston Fed President Susan Collins reiterated her view that the options are open for the size of the December interest rate hike, including the possibility of a 75 basis point move.

Traders will also be looking to the minutes from the Fed’s last meeting this week for further clues about the central bank’s next move.

“For the Fed right now, if we get some slowdown in inflation — which it looks like we might — but you don’t see that in the slowdown in services inflation, that has to do with a tight labor market,” Veronica Clark, an economist at Citigroup, said on Bloomberg Television. “You have to see that labor market data release.”

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Meanwhile, China reported its first Covid-related death in nearly six months on Saturday and two more were reported on Sunday. Worsening epidemics across the country are raising fears that authorities may once again resort to tough restrictions. Shutdowns could have a negative impact on supply chain dynamics and possibly exacerbate inflation problems in individual economies.

This week’s key events:

  • US Richmond Fed manufacturing index, Tuesday

  • The OECD published the Economic Outlook on Tuesday

  • The Fed’s Loretta Mester and James Bullard speak Tuesday

  • S&P Global PMIs: US, Eurozone, UK, Wednesday

  • US MBA Mortgage Applications Consumer Durables Initial Jobless Claims University of Michigan Sentiment New Home Sales Wednesday

  • Minutes from Wednesday’s meeting of the Federal Reserve System, November 1-2

  • The ECB publishes the report from its October meeting on Thursday

  • US stock and bond markets are closed on Thursday for the Thanksgiving holiday

  • US stock and bond markets will close early on Friday

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Some of the main movements in the markets:

Stocks

  • The S&P 500 was down 0.4% at 4:01 p.m. New York time

  • The Nasdaq 100 fell 1.1 percent

  • The Dow Jones industrial average fell 0.1 percent

  • The MSCI World index rose 0.6 percent

Currencies

  • Bloomberg Dollar Spot index rose 0.7%

  • The euro fell 0.8% to $1.0239

  • The British pound was down 0.6% at $1.1818

  • The Japanese yen fell 1.2% to 142.11 per dollar

Cryptocurrencies

  • Bitcoin fell 2.8% to $15,800.01

  • Ether fell 3.2% to $1,104.71

bonds

  • The 10-year yield was little changed at 3.83%

  • Germany’s 10-year yield fell two basis points to 1.99%

  • UK 10-year yield fell five basis points to 3.19%

Commodities

  • West Texas Intermediate crude fell 0.4% to $79.73 a barrel

  • Gold futures were down 0.8% at $1,755.20 an ounce

This story was produced with help from Bloomberg Automation.

–With help from Isabelle Lee.

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