Stocks dropped after the Federal Reserve signaled interest rates will be higher for longer and as traders awaited a Bank of England policy decision that hangs in the balance.
Europe’s Stoxx 600 Index fell 0.7%, with almost all industry groups in the red. Futures contracts for US benchmarks slipped, extending Wednesday’s losses on Wall Street. A gauge of Asian stocks fell the most in more than a month. Treasuries were mostly lower, while the dollar strengthened.
The BOE announcement caps a busy day for European central bankers. The Swiss franc fell after the Swiss National Bank delivered a surprise hold. Sweden’s Riksbank raised its key rate as expected and said more hikes were possible. A decision from Norway’s central bank is also due.
On Wednesday, the Fed held its target range, while updated quarterly projections showed most officials favored another rate hike in 2023. Policymakers also see less easing next year, with the median forecast for the federal funds rate at 5.1% by year-end, up from 4.6% when projections were last updated in June.
“The new projections suggest that the Fed has a fairly strong degree of confidence in its outlook for a soft landing and, in turn, that there will be very minimal space for policy easing next year,” said Seema Shah, chief global strategist at Principal Asset Management.
The pound weakened ahead of Thursday’s BOE policy decision. After UK inflation unexpectedly slowed, traders pared bets on further tightening steps by the central bank, with the market pricing a 50% chance of a quarter-point hike on Thursday. They are also betting that if the BOE does hike, it will be its last. Goldman Sachs and Nomura went further, saying rates have already peaked. Bloomberg Economics expects an increase.
“There is now a real possibility the BOE pauses its hiking cycle this month or, perhaps more likely, raises rates while sending a signal that it thinks the move will be the last of the cycle,” according to economists Dan Hanson and Ana Andrade.
Treasury yields mostly inched higher after the two-year yield, which is more sensitive to imminent Fed moves, hit the highest since 2006 on Wednesday.
The dollar rallied against major currencies, but was flat against the yen, which traded around 148 per dollar after weakening on Wednesday to the lowest level since November.
There are heightened prospects of official support for the Japanese currency, said John Vail, chief global strategist for Nikko Asset Management Co. in Tokyo. “Japan’s Ministry of Finance is likely to intervene in large fashion at 150 per dollar because it is hard to tolerate more inflationary pressure.”
Read more: Yen Intervention Chances Rise on Year Anniversary: Trader Talk
Japan is also where this week’s series of central bank policy meetings wraps up on Friday.
Among individual stock moves Thursday, Next Plc outperformed in London after the UK retailer raised its forecast.
Elsewhere, oil’s breakneck rally is taking a breather as a smaller-than-expected drop in US crude stockpiles bolstered technical resistance to further gains.
Key events this week:
- Eurozone consumer confidence, Thursday
- Bank of England policy meeting, Thursday
- US leading index, initial jobless claims, existing home sales, Thursday
- China’s Bund Summit, Friday
- Japan CPI, PMIs, Friday
- Bank of Japan rate decision, Friday
- Eurozone S&P Global Eurozone PMIs, Friday
- US S&P Global Manufacturing PMI, Friday
Some of the main moves in markets:
Stocks
- The Stoxx Europe 600 fell 0.6% as of 8:40 a.m. London time
- S&P 500 futures fell 0.3%
- Nasdaq 100 futures fell 0.4%
- Futures on the Dow Jones Industrial Average fell 0.2%
- The MSCI Asia Pacific Index fell 1.6%
- The MSCI Emerging Markets Index fell 1.2%
Currencies
- The Bloomberg Dollar Spot Index rose 0.2%
- The euro fell 0.1% to $1.0647
- The Japanese yen was unchanged at 148.34 per dollar
- The offshore yuan was little changed at 7.3105 per dollar
- The British pound fell 0.3% to $1.2304
Cryptocurrencies
- Bitcoin fell 0.3% to $27,013.78
- Ether fell 0.3% to $1,619.2
Bonds
- The yield on 10-year Treasuries advanced one basis point to 4.42%
- Germany’s 10-year yield advanced three basis points to 2.73%
- Britain’s 10-year yield advanced four basis points to 4.25%
Commodities
- Brent crude fell 1.2% to $92.37 a barrel
- Spot gold fell 0.2% to $1,926.68 an ounce
This story was produced with the assistance of Bloomberg Automation.
--With assistance from Tassia Sipahutar.
