(Bloomberg) — US equity-index futures fell with Treasuries after a chorus of Federal Reserve officials reiterated their resolve to continue rate hikes and traders raised tightening wagers for other major central banks.
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September contracts on the S&P 500 Index fell 0.5% after Thursday’s gains put the equity benchmark on course for the longest streak of weekly gains since November. Technology shares remained the weaker link, with Nasdaq 100 futures falling 0.6% Friday. The two-year Treasury yield advanced 6 basis points. The dollar headed for the biggest weekly rally since June 10. European stocks opened lower.
Two voting members of the Federal Open Market Committee — St. Louis’s James Bullard and Kansas City’s Esther George — emphasized that the US central bank will continue to raise interest rates until inflation eased back to its 2% target. While their views released Thursday diverged on the quantum of the Fed’s September move, they quelled expectations that a string of weak economic data will encourage the Fed into a dovish pivot.
“It is patently clear that the Fed has inflation reduction as its main aim, even though it acknowledges the knock-on risk of derailing the economy,” Richard Hunter, the head of markets at interactive investor in Leeds, UK, said. “Comments from several Fed officials suggest that there remains some way to go before victory can be declared on taming inflation.”
Non-voting officials also reiterated the Fed’s hawkish stance. San Francisco’s Mary Daly said officials would be in no hurry to reverse course next year, pushing back against bets for rate cuts before the end of 2023. Minneapolis’s Neel Kashkari said that “we have an inflation problem right now,” and that the central bank has to get it down “urgently.”
Treasuries fell across the curve on Friday. Money markets raised central-bank tightening wagers, with 40% odds of a 75-basis-point Fed hike in September and a 33% probability of a similar increase by the Bank of England, while a half-point hike by the European Central Bank is baked in.
Investors are now focusing on the Fed’s annual symposium at Jackson Hole, Wyoming, next week for further clues on the policy path. Recent data suggesting a slowdown in activity have underscored the growing impact of rate hikes on the world’s largest economy. Economists see a 50% chance of recession in the US, and a 55% probability in the eurozone. Worsening the sentiment is the Fed’s quantitative easing, set to accelerate to an annual pace of $1 trillion next month.
Europe’s Stoxx 600 fell on Friday, on course for a weekly decline. Real estate and travel & leisure stocks posted the worst performances. Asian shares retreated, led by Chinese mainland stocks.
The Bloomberg Dollar Spot Index was set for a 1.8% increase this week, having advanced on five of the past six days.
Geopolitical tensions are bubbling back into the surface, adding to the haven bid for the greenback. Indonesian President Joko Widodo said China’s Xi Jinping and Russia’s Vladimir Putin plan to be at a Group of 20 summit in Bali later this year. That sets up a showdown with US President Joe Biden and others as Russia continues its war in Ukraine.
Oil, gold and Bitcoin dropped. Later Friday, a $2 trillion options expiration could stir volatility in global markets.
Inflation remains the most closely-watched indicator in the second half. Will it come down gradually, or will it stay elevated, forcing the Fed to keep raising rates aggressively? Have your say in the anonymous MLIV Pulse survey.
Some of the main moves in markets:
Stocks
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The Stoxx Europe 600 fell 0.2% as of 9:06 a.m. London time
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Futures on the S&P 500 fell 0.5%
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Futures on the Nasdaq 100 fell 0.6%
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Futures on the Dow Jones Industrial Average fell 0.3%
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The MSCI Asia Pacific Index fell 0.6%
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The MSCI Emerging Markets Index fell 0.4%
Currencies
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The Bloomberg Dollar Spot Index rose 0.3%
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The euro was little changed at $1.0088
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The Japanese yen fell 0.6% to 136.72 per dollar
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The offshore yuan fell 0.3% to 6.8248 per dollar
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The British pound fell 0.3% to $1.1898
Bonds
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The yield on 10-year Treasuries advanced six basis points to 2.95%
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Germany’s 10-year yield advanced nine basis points to 1.19%
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Britain’s 10-year yield advanced 10 basis points to 2.41%
Commodities
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Brent crude fell 0.3% to $96.27 a barrel
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Spot gold fell 0.3% to $1,752.68 an ounce
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