Fear of a stock Fed-induced recession, the dollar turns south on gains

Reuters

NEW YORK – The S&P 500 bear market has moved closer and the dollar strengthened on Friday as investors’ fears of a tightening of the Federal Reserve’s policy on controlling inflation led to a recession.

China recovered shares in Europe and Asia after cutting a key debt benchmark to bolster its weakening economy, initially helping Wall Street gain.

China has cut its key interest rate for five-year debt, which affects mortgage prices, a decline of 15 basis points that was sharper than expected as authorities seek to mitigate the effects of the economic downturn.

The benchmark S&P 500 fell below 3837.248, or 20% lower than the January 3 record high closing, a fall that would ensure a good market if the index closes below that level.

Peter Tudge, president of the Chase Investment Council in Charlottesville, Virginia, says the downturn in equities will depend on how long it lasts when inflation breaks down.

Noting the poor earnings results of Walmart Inc. and Target Corporation, Tuz said, “Investors this week who are really fluxed, including me, are when you have the kind of companies that generally do well in economic softness, doing terribly.”

The S&P 500 lost 1.80%, the Dow Jones Industrial Average fell 1.49% and the Nasdaq Composite fell 2.54%.

Stephen Oth, chief investment officer at FedEx Hermes equities, said equity valuations need to be lower and the expected return on investment, the discount rate, needs to increase.

“The market is beginning to digest the notion that this could be a new world where the discount rate on risky assets is no longer zero,” Auth said.

“You can see that all these different sectors of the market have pounded at the same time and it has become very uncomfortable for investors,” he added.

MSCI’s stock fell 0.82% in 47 countries, tracking its seventh consecutive weekly fall, its longest losing streak since the index was launched in 1990.

Earlier, the pan-European STOXX 600 index closed up 0.73%.

US Treasury yields fell for the third consecutive session due to concerns over the prospect of growth. The benchmark 10-year note yield fell 7.8 basis points to 2.778%.

Fed-funded futures were even stronger, suggesting that the U.S. rate market has retreated slightly from its forecast of some more extreme rate growth. The rate market has set a Fed Funds rate of 2.783% at the end of next year, compared to the current level of 0.83%. Two weeks ago, the rate was as high as 2.9%.

The dollar has recovered some of its recent losses against the euro but has remained on pace for its worst weekly fall against the common currency since early February as investors questioned whether the greenback had a month-long rally.

The dollar has been supported in recent months by rising security, a hawkish Fed and a flight to safety amid market disasters over fears of a war in Ukraine.

The dollar index rose 0.223%, the euro fell 0.4% to 0 1.0544. The Japanese yen has strengthened from 0.01% to 127.76 against the dollar.

Eurozone bond yields were higher after a two-day sharp fall as risk aversion improved after China’s rate cut.

Germany’s 10-year government bond yield fell 1.2 basis points to 0.932%, down from last week’s eight-year high of 1.189%.

Markets are pricing at 38 basis points in a July meeting with the European Central Bank. This suggests that the full price increase of 25 basis points has been fixed and the markets are seeing the possibility of moving the additional 25 basis points by about 50/50.

Oil prices remained flat for a week, with the European Union’s planned embargo on Russian oil balancing concerns that economic growth would hurt slowing demand.

US crude futures rose $ 1.02 to 3 113.23 and Brent rose 51 cents to 2 112.55 a barrel.

Gold prices have risen on the back of worries over economic growth and the dollar’s fall in the week, heading for a five-week gain.

Treasury yield declines supported the safe-haven metal that day, with spot gold rising 0.1% to 8 1,843.29 an ounce by 1802 GMT. Prices hit a one-week high at the start of the session.

US gold futures rose 0.1% to settle at 8 1,842.10.

Bitcoin fell 4.16% to $ 29,029.40.

(Reporting by Herbert Lash, Samuel Indic in London and Andrew Galbraith in Shanghai; edited by Hugh Lawson, Kirsten Donovan)