LONDON/WASHINGTON: Wall Street opened sharply lower as world stocks hit five-week lows, while bond yields soared to multi-year highs on Friday as investors brace for rate hikes in the United States, Britain and the euro zone.
The Dow Jones Industrial Average fell 1.03% in early trading, while the S&P 500 dropped 0.91% and the Nasdaq Composite lost 0.53%.
The yuan struck a nine-month low, meanwhile, as lockdowns in Shanghai hit China’s growth prospects.
U.S. Federal Reserve Chairman Jerome Powell said on Thursday that a half-point interest rate increase would be “on the table” when the Fed meets in May, adding it would be appropriate to “be moving a little more quickly”.
European Central Bank officials said on Thursday the central bank might start hiking euro zone rates as early as July, while Bank of England interest rate-setter Catherine Mann said borrowing costs would probably have to rise further.
Earnings optimism helps Wall Street shrug off rising yields
“The Fed, the ECB and the Bank of England were pushing hawkish commentaries on the markets and markets have reacted,” said Monica Defend, head of Amundi Institute, though she added:
“For the euro area, we are more sceptical on the fragility of the economic cycle, there is big potential for a recession to take place in Germany and Italy.”
MSCI’s world equities index was down 1.07% at its lowest since mid-March.
Selling pressure persisted in bond markets, as five-year U.S. Treasury yields and two-year yields both hit their highest levels since late 2018.
Yields on benchmark 10-year Treasury bonds were last at 2.9064%.
European stocks were down 1.56%, with France’s CAC 40 down 1.54% ahead of Sunday’s presidential run-off vote. Britain’s FTSE fell 0.93%.
In currency markets, the yuan hit a nine-month low and was on course for its worst week since 2018.
JPMorgan cut its forecast for the currency on Friday, adding to the increasingly gloomy view on the yuan among top investment banks.
The dollar was steady at 128.35 yen after talk of joint Japan-U.S. FX intervention. The dollar index, which tracks the greenback versus a basket of six currencies, rose 0.43% as it approached two-year highs.
Oil prices weakened, burdened by the prospect of interest rate hikes, weaker global growth and COVID-19 lockdowns in China hurting demand, even as the European Union weighed a ban on Russian oil.
Brent crude was down 1.05% at $107.16 a barrel, while U.S. West Texas Intermediate (WTI) crude declined 1.16% to $102.52.
The oil price has been increasingly volatile in recent months.
Since the creation of the Brent futures contract, there have only been 29 days where the spread between the intra-day high and low was $8 a barrel or more. Of those, 16 have occurred this year.
Spot gold fell 0.32% to $1,945.36 per ounce.
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