(Bloomberg) — Stocks fell after hawkish remarks from Federal Reserve officials, with swaps now pricing in a 5% peak rate in the first half of next year. The pound rose after Liz Truss resigned as UK prime minister.
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A rally in the S&P 500 fizzled out after Philadelphia Fed chief Patrick Harker said policymakers are likely to raise rates to “well above” 4% this year and hold them at restrictive level — while leaving the door open to doing more if needed. Fed Governor Lisa Cook also spoke, noting that rates will need to keep rising to get inflation under control. The benchmark rate sits between 3% and 3.25%.
“Stocks are not out of the woods yet,” said Fawad Razaqzada, market analyst at City Index and Forex.com. “Fears over further tightening of central bank policy amid an environment of high-inflation and low-growth means investors will avoid buying stocks aggressively. Even at these relatively-inexpensive levels.”
Traders also sifted through a mixed bag of corporate earnings, with Tesla Inc.’s sales disappointing and International Business Machines Corp. topping forecasts. Several market observers remarked that the bar has been lowered quite a bit ahead of the earnings season, boosting the odds of upside surprises. There’s also been no shortage of warning signals about the economy.
Alcoa Corp., for instance, joined a rebound in metals Thursday. But its quarterly loss signaled a worsening environment for a company that just last month warned investors it was being squeezed by higher costs and falling aluminum prices. And that’s a dependable barometer of the health of sectors including construction, automotive, aerospace and consumer packaging.
Another worrisome signal came from Union Pacific Corp., the largest US freight railroad, which cut its forecast for volume growth to reflect a “challenging year.”
As traders wade through corporate results, “with an extra eye on guidance, expect volatility to remain elevated,” said Mike Loewengart at Morgan Stanley Global Investment Office.
Sterling climbed to about $1.13 and the yield on 10-year gilts was near levels before the mini-budget was announced last month. The FTSE 250 Index rallied as much as 1.2%. Many investors predicted the next UK prime minister will restore calm and make policy decisions that bring stability back to markets. Some traders said markets will be volatile until a replacement is named.
Some of the main moves in markets:
Stocks
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The S&P 500 fell 0.7% as of 1:52 p.m. New York time
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The Nasdaq 100 fell 0.5%
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The Dow Jones Industrial Average fell 0.3%
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The MSCI World index fell 0.5%
Currencies
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The Bloomberg Dollar Spot Index fell 0.1%
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The euro rose 0.1% to $0.9784
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The British pound rose 0.2% to $1.1239
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The Japanese yen was little changed at 150.01 per dollar
Cryptocurrencies
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Bitcoin fell 0.6% to $19,082.6
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Ether fell 0.8% to $1,284.04
Bonds
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The yield on 10-year Treasuries advanced eight basis points to 4.21%
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Germany’s 10-year yield advanced three basis points to 2.40%
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Britain’s 10-year yield advanced three basis points to 3.91%
Commodities
–With assistance from Vildana Hajric and Peyton Forte.
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