Shares slide on Hawkish Fed, dollar at 1 month high

  • US futures fell Friday but were still on track for a fifth weekly gain in a row.
  • Three Fed policymakers took an aggressive stance on rate hikes and weighed on investors’ risk appetite.
  • The US dollar hit a month-long high as China softened the yuan amid fears of an economic slowdown.

Global stocks fell Friday as investors worried about rate hikes again after three Federal Reserve policymakers made aggressive statements.

US futures fell but are still on track to close a fifth straight week in the green after James Bullard, president of the St. Louis Fed, told the Wall Street Journal that the US central bank should raise interest rates by 75 points in September.

The Dow Jones appeared to be falling on Friday’s opening bell, with futures falling 0.62%. S&P 500 futures fell 0.84%, while Nasdaq futures fell 1.08% in early morning trading.

Markets faltered after the release of the minutes of the Fed’s July meeting, which showed policymakers calling for interest rates to remain at “sufficiently restrictive levels”. Like Bullard, Mary Daly, president of the San Francisco Fed and Esther George, president of the Kansas City Fed, called for further aggressive rate hikes Thursday.

“We stand by our view that the Fed will raise interest rates an additional 100 basis points by the end of the year, with the risk of further increases if inflation does not slow down in line with our forecasts,” said UBS-CIO Mark haefele. “Against this still uncertain background, we prefer defensive and quality stocks to value stocks – which have historically outperformed in periods of high inflation.”

International equities also faltered amid aggressive expectations from the Fed, with the MSCI World Index falling 0.28%.

Europe’s flagship Stoxx 600 fell 0.45% after the opening bell, the CAC 40 in Paris fell 0.70% and the FTSE 100 in London fell 0.30%. Frankfurt’s DAX 40 threatened to lose double digits on Friday, falling 0.93%.

It was more of a mixed picture for Asian stocks, with Hong Kong’s Hang Seng climbing 0.04% and Tokyo’s Nikkei 225 climbing 0.04%. The Shanghai Composite fell 0.59% after the Chinese central bank devalued the yuan, implying an economic slowdown in the second half of 2022.

Oil also fell slightly on expectations of a Chinese slowdown, with Brent oil falling 1.38% to just over $95 a barrel and WTI crude falling 1.41% to just over $89 a barrel.

Expectations of aggressive rate hikes also helped push the dollar to its month-long high, with the US Dollar Index rising 0.20% to 107.70. US Treasuries also benefited from the Fed’s renewed hawkishness: 10-year yields rose 5 basis points to 2.93% and 2-year yields rose 1 basis point to 3.23%.

Elsewhere, the Chinese yuan fell to a three-month low against the dollar after the country’s central bank announced a softer fix for its currency. Spot prices fell 0.34%, with one yuan now worth 14.69 cents.

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