Wall Street stocks fell at the open on Wednesday after Federal Reserve Chairman Jay Powell said in his congressional testimony that US interest rates must rise to control inflation.
Wall Street’s benchmark S&P 500 fell 0.6 percent and the tech-heavy Nasdaq Composite lost 1 percent in early trade, leading both indexes to their third straight losses.
The drop came after the release of Powell’s semiannual testimony before the House Financial Services Committee, in which he said the Fed’s historic tightening campaign still has “a long way to go” before the economy slows enough to bring inflation back to 2. Cent target.
The U.S. Federal Reserve last week said it intends to hold the benchmark federal funds rate steady between a target range of 5 percent and 5.25 percent, but signaled two additional interest rate hikes may occur later in the year.
Based on data compiled by Refinitiv and the prices of interest rate derivatives, traders are pricing in a 74 percent probability that the central bank will go ahead with another quarter-point hike at its next policy meeting in July.
The dollar gained 0.1 percent against a basket of six peers, strengthening as investors awaited higher rates.
“A successful rate-cut pushback from Powell this week could provide some support to the dollar, but the greenback will be more sensitive to data as the market price is untethered from the central bank’s . . . forecasts”, said Francesco Pesol, FX strategist at ING.
Meanwhile, Europe’s regional-wide Stoxx 600 was down 0.5 percent, while France’s Cac 40 lost 0.6 percent and Germany’s Dax lost 0.4 percent.
In the UK, official data on Wednesday showed the annual rate of consumer price inflation was 8.7 percent in May, above analysts’ expectations of 8.4 percent, reinforcing investors’ view that the central bank is far from done. Tightening cycle.
Core inflation, which excludes volatile food and energy prices, rose again to 7.1 percent in May from 6.8 percent in the previous month.
Futures markets have indicated a more than 50 percent probability that the BoE will raise interest rates by 0.25 percentage points, from the current 4.5 percent, but the odds of a big half-point hike have increased.
“I don’t think so [inflation] “That’s high enough to increase the chances of a 50 basis point hike tomorrow, but it certainly raises the risks of getting more than 5 per cent hikes in August,” said Imogen Bachra, head of UK rates strategy at NatWest.
The yield on two-year gilts, sensitive to interest rate changes, rose 0.17 percentage points to 5.11 percent, while the yield on the 10-year benchmark edged up 0.11 percentage points to 4.5 percent. As prices fall, bond yields also rise.
Against the dollar, the pound was trading at $1.28 before retreating 0.3 percent to $1.27.
London’s FTSE was flat, but real estate shares fell 1.5 percent as “interest rate rises have pushed up monthly mortgage payments, which will contribute to a slowdown in business activity and house prices this year,” Tom Bill said. Head of UK residential research at Knight Frank.
Stocks in Asia traded lower, with China’s benchmark CSI 300 stock index falling 1.5 percent, while the Hong Kong-listed Hong Kong-based Hong Kong-listed Hong Kong China Enterprises Index fell 2 percent.