Stocks, Treasuries Sink on Hawkish Powell Remarks: Markets Wrap

(Bloomberg) -- U.S. stocks sold off for the first time in three sessions and Treasuries slumped as investors weighed the potential for added interest rate hikes this year following Federal Reserve Chairman Jerome Powell’s assessment that the economy is strengthening and inflation could be gaining speed. The dollar advanced.

All major equity gauges finished lower. Shares of media companies led the way down following Comcast’s $31 billion proposal to buy Sky Plc, which could set off a bidding war with Walt Disney Co. and 21st Century Fox Inc. Automakers and real estate developers also struggled.

Powell’s testimony raised the possibility that the Fed could rethink its plan for three interest rate hikes this year and potentially add a fourth. The 10-year Treasury yield initially spiked on Powell’s seemingly hawkish tone before drifting back below 2.9 percent.

“The markets are skittish,” said Barry James, president and portfolio manager at James Investment Research in Xenia, Ohio. “People are maybe a little bit oversensitive right now.”

The pace of U.S. monetary policy tightening remains a hot debate on Wall Street, and traders have been betting that Powell won’t seek to shock financial markets by moving toward a more hawkish monetary policy. Fed Governor Randal Quarles made clear on Monday that he thought a sustained period of strong growth might require higher interest rates.

“At some point rates do start to bite,” said Mona Mahajan, U.S. investment strategist for Allianz Global Investors. “And at some point if inflation does start to emerge more rapidly, which it can toward the end of the Fed cycle, we can start to see either the Fed making a policy mistake or equity markets start to price in a downward movement.”

Elsewhere, German bunds and U.K. gilts led a retreat in European bonds. Most industry groups in the Euro Stoxx 600 Index declined after Japan led Asian equities higher. The won rose for a third day as the Bank of Korea left its benchmark interest rate unchanged. Oil slipped following a three-day rally as investors awaited U.S. inventory data. South Africa’s rand handed back recent gains amid a cabinet reshuffle.

Terminal users can read more in our markets blog.

Here are some key events scheduled for this week:

• Companies announcing earnings this week include: Vale, Bayer and Lowe’s.
• The European Union will publish a draft Brexit treaty on Wednesday and U.K. Prime Minister Theresa May delivers a speech Friday on Britain’s relationship with the European Union.
• A barrage of data is expected out of Japan including retail sales and industrial production Wednesday, and capital spending Thursday.
• In China, the official and Caixin purchasing managers’ indexes on Wednesday and Thursday respectively may show growth momentum slowed slightly in February, though the signal may be clouded by the holidays.

These are the main moves in markets:

Stocks

• The S&P 500 Index plunged 1.3 percent to 2,744.27, its biggest decline in more than two weeks.
• The Nasdaq Composite Index dropped 1.2 percent.
• The Stoxx Europe 600 Index slipped 0.2 percent.
• The MSCI All-Country World Index retreated 0.9 percent.

Currencies

• The Bloomberg Dollar Spot Index climbed 0.6 percent.
• The euro fell 0.7 percent to $1.223.
• The Japanese yen declined 0.4 percent to 107.37 per dollar.
• South Africa’s rand plunged 1.7 percent to 11.7488 per dollar, the biggest drop in more than three weeks.
• The British pound slid 0.5 percent to $1.3904.

Bonds

• The yield on 10-year Treasuries rose three basis points to 2.89 percent.
• Germany’s 10-year yield gained three basis points to 0.68 percent.
• Britain’s 10-year yield added five basis points to 1.56 percent.

Commodities

• West Texas Intermediate crude slumped 1.6 percent to $62.89 a barrel, the largest decline in almost three weeks.
• Gold dropped 1.1 percent to $1,318.79 an ounce, the lowest in more than two weeks.

--With assistance from Richard Richtmyer and Eddie van der Walt

To contact the reporters on this story: Sarah Ponczek in New York at sponczek2@bloomberg.net, Kailey Leinz in New York at kleinz1@bloomberg.net.

To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net, Eric J. Weiner

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