WASHINGTON: U.S. stocks and oil tumbled on Friday while bond yields continued to gain as investors prepared for a bevy of interest rate hikes in a global inflation fight.
All three major indices on Wall Street steepened their losses one day after Federal Reserve Chairman Jerome Powell indicated that the U.S. central bank was preparing a half-pointinterest rate hike at its upcoming May meeting, with more tocome.
The Dow Jones Industrial Average was down 1.84% inafternoon trading, while the S&P 500 lost 1.90% and theNasdaq Composite dropped 1.86%.
The MSCI world equity index, which tracks shares in 45 nations, fell 1.93%.
Powell drove headlines on Thursday when he said a 50 basispoint rate hike is “on the table” at the Fed’s next meeting,adding that it “is appropriate to be moving a little morequickly” to combat inflation.
“In recent weeks, there has been growing chatter the Fedmight look to ramp up the rate it will be tightening its policy,and the update from Jerome Powell made it very clear that willhappen. Good communication skills in this situation are crucial, and Mr. Powell gave a very clear signal there will be a 0.5% hike next month,” said David Madden, market analyst at Equiti Capital.
Wall Street loses steam ahead of Fed chair’s speech
The prospect of aggressive hikes was a boon to the U.S.dollar, which surged to a more than two-year high on Friday.
The dollar index, which tracks the greenback versus abasket of six currencies, was last up 0.64% to 101.218, clearinglevels not seen since March 2020.
The dollar’s surge took a toll on fellow safe-haven gold,with spot gold prices falling 0.86% to $1,934.68 anounce.
Yields on U.S. Treasury bonds were also on the uptick astraders prepared for higher rates, with short-dated bondshitting three-year highs in Friday trading.
Two-year note yields, which are highly sensitiveto interest rate moves, rose to 2.789%, the highest sinceDecember 2018, before dipping lower to 2.7134% in the afternoon.
Benchmark 10-year yields were last at 2.9064%, afterreaching 2.981% on Wednesday, also the highest since December 2018.
“We’re repeating the same message from central bankers, andevery time each repetition ratchets short interest rateshigher,” said Jim Vogel, an interest rate strategist at FHNFinancial in Memphis, Tennessee.
European stocks finished down 1.76%, with France’sCAC 40 down 1.99% ahead of Sunday’s presidential run-offvote. Britain’s FTSE fell 1.39%.
Oil looked set for a weekly decline Friday, as concerns oflooming interest rate hikes, weaker global growth and COVID-19 lockdowns in China hurting demand outweighed a potential European Union ban on Russian oil that would tighten supply.
Brent crude was last down 1.82% at $106.36 a barrel,while U.S. West Texas Intermediate (WTI) crude declined1.97% to $101.76.
The oil price has been increasingly volatile in recentmonths.
Since the creation of the Brent futures contract, there havebeen only 29 days when the spread between the intra-day high and low was $8 a barrel or more. Of those, 16 have occurred this year.