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

(Bloomberg) — US stocks dropped as investors parsed comments from Federal Reserve officials who broadly remained steadfast in their fight against inflation. Mounting concerns that China may tighten Covid curbs after a string of reported deaths also continued to weigh on investors.

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Technology stocks, which are typically 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 largely unchanged after Saudi Arabia denied a report that it is discussing an oil-production increase for the OPEC+ meeting next month. The dollar climbed for a third day as investors sought haven assets. Treasuries were mixed.

Investors are closely watching what Fed speakers say about the outlook for interest rates. While several central bank officials in recent days have rested their intention to remain relentless until inflation is under control, they differ on how far they’ll go. On Monday, San Francisco Fed President Mary Daly said that officials will 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’s open to slowing the tempo of rate hikes.

“This shouldn’t be regarded as a pivot or anything new,” said Michael Contopoulos, director of fixed income at Richard Bernstein Advisors. “A real pivot is when the Fed starts to cut rates and/or pause quantitative tightening. That is nowhere in sight.”

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

Traders this week will also be looking to minutes of the most recent Fed policy meeting for further clues on the central bank’s path ahead.

“For the Fed right now, if we do get some slowing in inflation — which it seems like we might — but you’re not seeing it in the slowing of service inflation, that’s related to a tight labor market,” Veronica Clark , economist at Citigroup, said on Bloomberg Television. “You do need to see that loosening in the labor market data.”

Meanwhile, China saw its first Covid-related death in almost six months on Saturday and another two were reported on Sunday. Worsening outbreaks across the nation are stoking concerns that authorities may again resort to harsh restrictions. Shutdowns could have a negative impact on supply-chain dynamics and possibly exacerbate inflation issues across economies.

Key events this week:

  • US Richmond Fed manufacturing index, Tuesday

  • OECD releases Economic Outlook, Tuesday

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

  • S&P Global PMIs: US, Euro area, UK, Wednesday

  • US MBA mortgage applications, durable goods, initial jobless claims, University of Michigan sentiment, new home sales, Wednesday

  • Minutes of the Federal Reserve’s Nov. 1-2 meeting, Wednesday

  • ECB publishes account of its October policy meeting, Thursday

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

  • US stock and bond markets close early, Friday

Some of the main moves in markets:

Inventory

  • The S&P 500 fell 0.4% as of 4:01 pm New York time

  • The Nasdaq 100 fell 1.1%

  • The Dow Jones Industrial Average fell 0.1%

  • The MSCI World index rose 0.6%

Currencies

  • The Bloomberg Dollar Spot Index pink 0.7%

  • The euro fell 0.8% to $1.0239

  • The British pound fell 0.6% to $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

Leaps

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

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

  • Britain’s 10-year yield declined five basis points to 3.19%

Commodities

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

  • Gold futures fell 0.8% to $1,755.20 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Isabelle Lee.

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