US Stocks Extend Losses as Treasuries Catch Bids: Markets Wrap

(Bloomberg) -- US stocks fell as investors weighed implications for growth and market stability from the European Central Bank’s policy decision. Treasuries rose, while the euro clawed back losses after the central bank’s briefing ended. 

The S&P 500 and the tech-heavy Nasdaq 100 dropped lows of the day as news of US President Joe Biden testing positive for Covid added to market jitters. Treasury yields fell, with the 10-year rate dropping back below 3%.  

Thursday’s hike, the first increase in 11 years and the biggest since 2000, ends an era of negative rates that helped the region’s economies navigate the global financial crisis, the sovereign debt meltdown and then the 2020 pandemic. It comes as a brewing political crisis in Italy ramps up the pressure on the ECB to shield the most vulnerable eurozone members from market speculation through a new crisis management tool. 

“The ECB did whats needed, but let’s be clear - they have no good options,’ said James Athey, investment director at Abrdn. “The stagflation trade-off they face is horrible, the worst error they could make is to allow inflation to become unhinged. But dealing with inflation clearly hurts growth. Either way, equities aren’t a great investment right here and so the fact they’re now falling makes sense to me.”

Traders raised wagers on the pace of tightening, pricing an additional 137 basis points of hikes by year-end compared with less than 120 basis points earlier.

Thursday’s 50 basis-point hike in the deposit rate to 0% was twice the amount telegraphed until just days ago and was predicted by only four of 53 economists surveyed by Bloomberg. 

Risk sentiment remains fragile as investors debate whether equities have reached a trough after this year’s selloff amid the war in Ukraine, a slowdown in China and the prospect of a US recession. The resumption of Russian gas exports to Europe through Nord Stream is set to provide some relief for the continent that’s racing to store the fuel before the winter.  

Some of the main moves in markets:

Stocks

• The S&P 500 fell 0.7% as of 10:31 a.m. New York time
• The Nasdaq 100 fell 0.6%
• The Dow Jones Industrial Average fell 1%
• The Stoxx Europe 600 was little changed
• The MSCI World index fell 0.6%

Currencies

• The Bloomberg Dollar Spot Index rose 0.1%
• The euro was little changed at $1.0172
• The British pound fell 0.5% to $1.1917
• The Japanese yen was little changed at 138.19 per dollar

Bonds

• The yield on 10-year Treasuries declined nine basis points to 2.94%
• Germany’s 10-year yield declined four basis points to 1.21%
• Britain’s 10-year yield declined seven basis points to 2.07%

Commodities

• West Texas Intermediate crude fell 4.3% to $95.54 a barrel
• Gold futures rose 0.3% to $1,722 an ounce

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