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Wall Street's Fed headache lingers as stocks decline, Treasuries gain

EconomyJan 06, 2022 04:36PM ET
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2/2 © Reuters. FILE PHOTO: Passersby wearing protective face masks are seen in front of an electronic board showing Japan’s Nikkei share average, amid the coronavirus disease (COVID-19) pandemic, in Tokyo, Japan November 1, 2021. REUTERS/Issei Kato 2/2

By Lawrence Delevingne

BOSTON (Reuters) -Wall Street's headache over the potential of a relatively fast pullback from stimulus by the U.S. Federal Reserve lingered Thursday as stocks sold off again and government bond yields mostly marched higher.

The Dow Jones Industrial Average fell 170.64 points, or 0.47%, to 36,236.47, the S&P 500 lost 4.53 points, or 0.10%, to 4,696.05 and the Nasdaq Composite dropped 19.31 points, or 0.13%, to 15,080.87.

Stocks fell sharply in Asia and Europe too after Wall Street's technology-heavy Nasdaq index plunged more than 3% on Wednesday.

Minutes released on Wednesday from the Fed's December meeting https://www.reuters.com/markets/us/fed-may-need-hike-rates-faster-reduce-balance-sheet-quickly-minutes-show-2022-01-05 had shown that a tight jobs market and unrelenting inflation could require the U.S. central bank to raise rates sooner than expected and begin reducing its overall asset holdings.

The Fed news "took stock markets unawares this week, creating a level of discomfort with more speculative stocks," analyst Christopher Whalen of Whalen Global Advisors LLC wrote in a note Thursday.

As stocks struggled, U.S. Treasury yields on most maturities rose again on Thursday as investors fretted over the Fed's more hawkish stance, surging inflation and a deluge of supply.

Benchmark 10-year yields rose to 1.7530%, the highest since March 2021, and were last up slightly on the day to 1.7246%. U.S. 2-year yields, which track near-term rate expectations, rose to the highest since early March 2020, the start of the global spread of COVID-19, at 0.8736%.

Adding to the worries on Thursday was data from the U.S. Labor Department https://www.reuters.com/markets/us/us-weekly-jobless-claims-increase-moderately-2022-01-06 showing an increase in the number of Americans filing new claims for unemployment benefits last week, and the Institute for Supply Management (ISM) noting that non-manufacturing activity fell in December.

"Despite the weaker than expected ISM today, the market continued to increase how much it is pricing for the Fed to hike in 2022 and 2023 – now more than 5.5 hikes is priced before the end of 2023," Nancy Davis, founder of Quadratic Capital Management in Greenwich, Connecticut, said in an email.

Investors will now look ahead to a key U.S. jobs report on Friday, which will follow new euro zone inflation data that the European Central Bank will watch closely.

The dollar continued its climb towards a 14-month high, after riding the tailwind of the Fed minutes. The dollar index last gained 0.105%, with the euro down 0.19% at $1.1291.

Cryptocurrencies were among the hardest hit in the overnight market selloff, with bitcoin falling more than 5%. It last traded at around $43,164, down 0.63% on the day.

Gold prices slid to a two-week low on Thursday, pressured by rallying U.S. Treasury yields.

Spot gold dropped 1.2% to $1,788.22 an ounce. U.S. gold futures fell 2.1% to $1,787.10 an ounce.

In commodity markets, oil prices rose sharply on Thursday, extending their new year's rally, on escalating unrest in OPEC+ oil producer Kazakhstan and supply outages in Libya.

U.S. crude rose 2.1% to $79.50 per barrel and Brent was at $81.99, up 1.5% on the day.

Wall Street's Fed headache lingers as stocks decline, Treasuries gain
 

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Comments (6)
Al Ose
Al Ose Jan 06, 2022 4:34PM ET
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Gonna brvhard to get any susteined momentum until we have a proper correction, whenever that happens. But it will.
Raja Tampan
Raja Tampan Jan 06, 2022 2:31AM ET
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now is green. So, what happen?
Fabio Dias
Fabio Dias Jan 06, 2022 1:50AM ET
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nice article. interest rates are moving slow. I thought they would gain some traction.
Joel Schwartz
Joel Schwartz Jan 06, 2022 12:02AM ET
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See the problem is the FED created 40% more money out of thin air during the last two years and then leveraged it 1000x via dropping interest rates to zero. This is extreme late stage capitalism before everything crashes. They didn’t use a bazooka; they used multiple atom bombs.
Miriam Morkhul
Miriam Morkhul Jan 06, 2022 12:02AM ET
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Let's not use the socialists word "capitalism" when commenting on central bank policy. Capitalism is a positive force because it produces real world development and prosperity. Printing money to buy a derivate of a derivate is not capitalism. It's rotten hot potato waiting to explode in someone hands.
Matt Kay
Matt Kay Jan 06, 2022 12:02AM ET
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Miriam Morkhul Capitalism? Positive? Awww, you got brainwashed. Capitalism destroyed the world. It is the reason planet is dead and people are starving. It is the reason why 70% of all money belongs to 1%. You, donkey.
Hugh Fissore
HMJF Jan 06, 2022 12:02AM ET
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Matt Kay communism 🤣🤮 much better look at China USSR Venezuela North Korea and then choose … capitalism took many people out of poverty …just facts !
Hugh Fissore
HMJF Jan 06, 2022 12:02AM ET
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Matt Kay donkey yourself and accept other opinion !
simone scelsa
simone scelsa Jan 06, 2022 12:02AM ET
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This is not capitalism, it is central planning.
Dikabelo joseph Moipolai
Dikabelo joseph Moipolai Jan 05, 2022 10:39PM ET
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we will c fall stock COVID takes its toll fed results negative impact
Don Getty
Don Getty Jan 05, 2022 10:11PM ET
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asian shares fall on sudden realization - covid in the US is going to be a huge issue - right after Hong Kong closed flights from 8 western countries - Its real now people - bye bye oil prices the next 3-4 weeks
 
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