NEW YORK / LONDON (Reuters) – US stocks widened their losses on Tuesday after Federal Reserve Chairman Jerome Powell said the central bank was likely to raise interest rates this year, remarks that tempered demand for risky assets and raised bond yields.
At 3:53 p.m. GMT, the Dow Jones Industrial Average fell 0.57%, the S&P 500 lost 0.52%, and the Nasdaq Composite fell 0.41%.
European stocks fared better, with the pan-European STOXX 600 index rising 0.69%, while the gauge of MSCI stocks across the world fell 0.10%.
In remarks to U.S. lawmakers on Tuesday, Powell said he expected the Fed to raise interest rates this year and end its asset purchases, but the central bank took no action. decision on the timing of monetary policy tightening.
“We know that high inflation comes at a price,” said Powell, pledging to use the central bank’s full suite of policy tools “to prevent higher inflation from taking hold.”
US consumer inflation data for December will be released on Wednesday, with the headline CPI expected to hit 7% year-on-year, strengthening the case for a rate hike sooner rather than later.
Inflationary pressures prompted the Fed in December to signal its intention to tighten policy faster than expected, possibly even raising rates in March, although this is before it becomes clear how fast the variant will be. of the Omicron coronavirus would spread.
Chart – Bloomberg Barclays Index:
“We continue to believe that take-off in March is more and more likely. How these debates are settled will likely have implications for post-take-off rate hikes, ”Nomura economists said in a report, referring to US monetary policy.
“In particular, we believe the comments about earlier runoff and less aggressive rate hikes support our view that the Fed will slow the pace of rate hikes to two per year in 2023.”
Benchmark 10-year Treasury yields climbed to 1.7764% on Powell’s comments, after peaking nearly two years above 1.8% overnight.
Highly interest rate sensitive two-year Treasury yields jumped to 0.945%, the highest since February 2020. [US/]
The dollar index, which measures the currency against six counterparties, hovered around 95.91.
The prospect of rising US interest rates did not help the dollar, however. The dollar index, which measures the currency against a basket of major currencies, fell 0.27% to 95.674. The euro appreciated 0.23% to $ 1.135. [USD/]
The abandonment of risk and a weaker dollar benefited gold. Spot gold rose 0.6% to $ 1,811.45 an ounce. US gold futures gained 0.39% to $ 1,805.40 an ounce. [GOL/]
Oil has hit nearly $ 82 a barrel, bolstered by tight supply and is hoping the increase in coronavirus cases and the spread of the Omicron variant won’t derail a rebound in global demand.
US crude added 1.96% to $ 79.76 a barrel and Brent to $ 82.33, up 1.81% on the day.
Bitcoin reversed some of Monday’s losses and climbed back to nearly $ 42,000 after falling below $ 40,000 the day before for the first time since September.
Reporting by Karin Strohecker, Sujata Rao and Tommy Wilkes in London and Anshuman Daga in Singapore; Editing by Edmund Blair, David Goodman and Gareth Jones