Global equities fell while U.S. Treasury yields rose on Thursday as investors weighed hawkish commentary from Federal Reserve Chair Jerome Powell on the prospects of further interest rate hikes targeted at reining in inflation.
Market sentiment has been bearish after the Fed on Wednesday raised rates by 75 basis points and Powell said during a press conference that the “ultimate level” of interest rates is likely higher than previously estimated, and the central bank still has “some ways to go.”
Traders, who were expecting the Fed to strike a more dovish stance after delivering its fourth consecutive rate hike, were rattled.
“We’ve done 400 basis points in eight months – one of the steepest ascents in tightening in history – and to not sit back and see for a few months how the data comes in is just reckless,” said Thomas Hayes, chairman at Great Hill Capital in New York.
The MSCI world equity index (.MIWD00000PUS), which tracks shares in 50 countries, shaved almost 2%. European stocks (.STOXX) dropped nearly 1% after the Bank of England delivered its biggest rate rise since 1989.
On Wall Street, all three major indexes closed lower, led by a selloff in technology, communication services, financials, healthcare, and consumer discretionary stocks.
The Dow Jones Industrial Average (.DJI) fell 0.46% to 32,001.25, the S&P 500 (.SPX) lost 1.06% to 3,719.89 and the Nasdaq Composite (.IXIC) dropped 1.73% to 10,342.94.
“I think the kind of double talk that we saw yesterday is really beginning to massively erode the credibility of anything they say. What’s going to happen is that at some point, they’re going to talk hawkish and the market is going to rally,” Hayes added.
Treasury yields were higher, with the two-year note climbing toward 5%, following comments by the Fed chair and the interest rate hikes by the U.S. and British central banks. Both notes have pared back some gains from the previous day’s session.
The yield on the benchmark 10-year note rose to 4.149%, while the two-year yield, which typically moves in step with interest rate expectations, was up at 44.7117%.
The U.S. dollar strengthened after the Fed’s hawkish comments, while the euro and the pound slid after the BoE’s statement. The dollar index rose 1.46%, with the euro down 0.7% to $0.9748.
Oil prices fell as an increase in U.S. interest rates pushed up the dollar and heightened fears of a global recession that would crimp fuel demand.
Brent futures were down 1.5% to settle at $94.67 a barrel, while U.S. West Texas Intermediate (WTI) crude fell 2.0% to settle at $88.17.
Gold prices fell to a more than one-month low after the dollar gained following the Fed’s stiff interest rate stance. Spot gold dropped 0.3% to $1,630.15 an ounce, while U.S. gold futures settled 1.2% lower at $1,630.9.