(Bloomberg) — Stocks fell and the dollar edged higher on renewed concern about higher-for-longer US interest rates, with all eyes on the Federal Reserve’s policy decision due later Wednesday.
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The risk-off mood prevailed in a holiday-thinned session in Europe and Asia. Contracts on the S&P 500 pointed to further losses on Wall Street after US data on Tuesday reinforced bets officials will keep rates steady at a two-decade high. Europe’s Stoxx 600 dipped 0.1%. A dollar gauge climbed, while 10-year Treasury yields were little changed at 4.68%. Brent crude sank for a third day.
The last time Fed Chair Jerome Powell spoke, he pointed to the lack of progress in bringing inflation down. The most recent signals on prices and the economy — along with expectations for a robust employment report on Friday — are unlikely to prompt a change of tune.
“We are unlikely to hear anything dovish from the Fed today,” said Lilian Chovin, head of asset allocation at Coutts. “The higher-for-longer narrative is not easy for markets to navigate.”
Traders are bracing for big moves in stock markets and bonds are turning more bearish ahead of what many expect will be a hawkish tilt by the Fed. After positioning at the start of the year for multiple reductions in 2024, investors are now pricing in just one full quarter-point cut.
The options market is flagging a bigger move in the S&P 500 Index than at any point in the past 11 months.
“If the Fed asserts a high probability of no cuts this year, or even the open possibility of another hike, that could deepen the selloff in stocks,” said Kyle Rodda, a senior market analyst at Capital.com.
Meanwhile, data for the week leading up to April 23 showed hedge funds building short positions in bond futures. Commodity trading advisors, or CTAs, are now sitting at near “max short duration,” according to Bank of America strategists.
Oil Slump
Oil extended declines, with Brent falling around 1% for a third day and trading near $85 a barrel. Prices dropped on prospects for a cease-fire in the Middle East and the risk that elevated inflation will weigh on the outlook for US demand.
As well as the Fed decision, traders will also be digesting Amazon.com Inc.’s strong cloud unit sales, released late Tuesday, and a lukewarm revenue forecast from Advanced Micro Devices Inc., the second-biggest maker of computer processors.
Elsewhere, global investors are unwinding bets on local-currency bonds in emerging markets as some central banks come under pressure to raise interest rates. A Bloomberg gauge of the asset class fell 1.3% in April, the the biggest monthly decline since September.
Key events this week:
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Holiday across much of Asia and Europe, Wednesday
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Treasury’s quarterly refunding announcement, Wednesday
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US ADP employment change, JOLTS job openings, ISM Manufacturing, Wednesday
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Federal Reserve rate decision, Wednesday
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Eurozone S&P Global Manufacturing PMI, Thursday
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US factory orders, initial jobless claims, trade, Thursday
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Apple earnings, Thursday
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Eurozone unemployment, Friday
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US unemployment, nonfarm payrolls, ISM Services, Friday
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Chicago Fed President Austan Goolsbee speaks, Friday
Some of the main moves in markets:
Stocks
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The Stoxx Europe 600 was little changed as of 9:26 a.m. London time
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S&P 500 futures fell 0.3%
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Nasdaq 100 futures fell 0.5%
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Futures on the Dow Jones Industrial Average fell 0.1%
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The MSCI Asia Pacific Index fell 0.5%
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The MSCI Emerging Markets Index fell 0.1%
Currencies
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The Bloomberg Dollar Spot Index was little changed
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The euro was unchanged at $1.0666
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The Japanese yen was little changed at 157.95 per dollar
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The offshore yuan rose 0.1% to 7.2456 per dollar
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The British pound was little changed at $1.2488
Cryptocurrencies
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Bitcoin fell 4.7% to $57,029.26
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Ether fell 4.1% to $2,840.37
Bonds
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The yield on 10-year Treasuries was little changed at 4.68%
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Germany’s 10-year yield advanced five basis points to 2.58%
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Britain’s 10-year yield advanced two basis points to 4.37%
Commodities
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Rob Verdonck, Aya Wagatsuma and Winnie Hsu.
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