Mon. May 23rd, 2022

The S&P 500 fell after rising more than two percent earlier Wednesday.

By Bloomberg

Shares wiped out gains and treasury yields rose sharply as Jerome Powell signaled that the Federal Reserve would continually remove support for the economy while fighting rampant inflation.

The S&P 500 fell after rising more than 2% earlier Wednesday, the dollar rising while 10-year yields reached 1.8%. The head of the central bank said he supported an increase in March and would not rule out an increase every meeting, noting that the inflation situation was “slightly worse” than it was in December. Powell added that he tends to increase his forecast by a “few tenths”. In its statement, the Fed indicated that its first interest rate hike since 2018 would take place “soon”, while saying it expects a balance sheet reduction to begin thereafter.

Swaps linked to Fed meeting dates suggest that traders are now pricing in about 30 basis points of tightness at the next central bank meeting in March. The central bank usually shifts rates in increments of 25 basis points, so that kind of pricing indicates that at least a standard increase is certain and there is about a one-in-five possibility of a 50 basis point increase. About 1.13 percentage points of sharpening will be priced in for the whole of 2022.

Other corporate highlights:

  • Microsoft Corp. said its cloud computing business has potential to drive growth, while Texas Instruments Inc. ‘s optimistic outlook indicated that demand for electronic components remains high.
  • Planemaker Boeing Co. recorded $ 5.5 billion in total costs and expenses to cover higher manufacturing and customer expenses for the 787 Dreamliner.
  • AT&T Inc. showed earnings exceeding estimates, giving investors less reason to worry about lavish free phone promotions.
  • Nasdaq Inc., operator of the technology-heavy stock exchange, achieved record earnings that beat analysts’ expectations.
  • Mattel Inc. got back the license to manufacture toys based on Walt Disney Co. ‘s princesses and the “Frozen” movies.

The latest economic readings showed that sales of new US homes rose to a nine-month high in December. Meanwhile, the merchandise trade deficit unexpectedly increased to a fresh record as imports continued to rise, exceeding overseas shipments.

On the geopolitical front, the US has told its citizens to consider leaving Ukraine now given the ongoing tensions with Russia and the “unpredictable” security situation in the Eastern European nation. Russia’s foreign minister, Sergei Lavrov, has said the Kremlin will respond to any “aggressive” action by the United States as an ally of President Vladimir Putin has suggested sending weapons to separatists. President Joe Biden has said he would consider personally sanctioning Putin if he ordered an invasion of Ukraine.

What to watch this week:

  • South African Reserve Bank’s rate decision on Thursday.
  • US initial jobless claims, durable goods, GDP Thursday.
  • Eurozone economic confidence, consumer confidence Friday.
  • U.S. Consumer Income, University of Michigan’s Consumer Sentiment Friday.

Shares

  • The S&P 500 dropped 0.2% by 4pm New York time
  • The Nasdaq 100 up 0.2%
  • The Dow Jones Industrial Average fell 0.4%
  • The MSCI World Index has changed little

Currencies

  • The Bloomberg Dollar Spot Index Rises 0.5%
  • The euro fell 0.5% to $ 1.1241
  • The British pound fell 0.3% to $ 1.3462
  • The Japanese yen fell 0.6% to 114.59 per dollar

Bonds

  • Yields on 10-year treasuries rose nine basis points to 1.86%
  • Germany’s 10-year yield changed little at -0.07%
  • Britain’s 10-year yield rose by three basis points to 1.20%

Commodities

  • West Texas Intermediate crude rose 1.3% to $ 86.75 a barrel
  • Gold futures fell 1.9% to $ 1,819.20 an ounce

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