© Reuters. FILE PHOTO: A woman walks past a man examining an electronic board showing Japan’s Nikkei average and stock quotations outside a brokerage, in Tokyo, Japan, March 20, 2023. REUTERS/Androniki Christodoulou/File Photo
By Herbert Lash and Dhara Ranasinghe
NEW YORK/LONDON (Reuters) -World stock markets slid on Wednesday and the dollar gained for a third straight day as some investors accepted the notion that while the Federal Reserve may have halted hiking interest rates, they will still stay higher for longer.
Yields across the Treasury curve mostly fell as the auction of benchmark 10-year notes was modestly better than expected and the view that the Fed has likely ended its hiking cycle kept downward momentum in place.
The dollar also has rebounded from last week’s sharp selloff amid rising confidence the Fed has ended raising rates, though there is less agreement on whether a rate cut is on the horizon with inflation still above the U.S. central bank’s 2% target.
“The Fed not necessarily hiking anymore might get people a little bit more excited, but does that mean that we’re going to start cutting aggressively? It’s too early to say that,” said Marvin Loh, senior global macro strategist at State Street (NYSE:) in Boston.
“A lot of the questions that we were asking that drove yields higher we’re still asking,” he said, referring to the bond rally that raised the 10-year yield above 5% two weeks ago. Bond prices move inversely to their yield.
Fed Chair Jerome Powell did not comment on monetary policy or the economic outlook in prepared remarks at a U.S. central bank statistic conference. Investors have ramped up bets for Fed rate cuts next year, though when has not been resolved.
Markets are pricing in an almost 50% chance of a rate cut of at least 25 basis points as soon as May, according to the CME Group’s (NASDAQ:) FedWatch Tool, compared with about 41% a week earlier.
But futures also call for the Fed’s overnight lending rate to remain above 5% through next June.
MSCI’s all-country world stock index shed 0.07% after last week posting its biggest weekly jump in almost a year. Europe’s broad index closed up 0.28%.
On Wall Street, the fell 0.19%, the gained 0.01% and the dropped 0.07%.
“The market has it right that rates have peaked,” said Rhys Williams, chief strategist at Sprouting Rock Asset Management in Bryn Mawr, Pennsylvania, but since the Fed has “been so macho about higher for longer,” a rate cut is unlikely to come soon.
European shares rose, supported by gains in healthcare stocks and strong earnings reports, while investors assessed a slew of economic data and comments from central bankers for cues on the European Central Bank’s rate hike path.
Data showed euro zone retail sales fell roughly in line with expectations in September, while another survey showed euro zone consumers have raised their inflation expectations over the next 12 months to 4%.
The rose 0.03% at 105.55, with the euro up 0.04% to $1.0703.
Still, it remains well off the high at the start of this month at 107.11.
The majority of FX strategists in a Reuters poll expect dollar weakness to linger for the rest of the year, amid a building consensus that the Fed’s tightening cycle is done, also signaling a peak in U.S. yields.
MSCI’s broadest index of Asia-Pacific shares overnight slipped 0.3% and 225 closed lower after Bank of Japan Governor Kazuo Ueda told parliament the central bank does not need to wait until real wages turn positive before exiting stimulus.
Hong Kong’s fell and an index of mainland blue chips lost 0.24%.
Chinese authorities have asked Ping An Insurance Group to take a controlling stake in embattled Country Garden, the nation’s biggest private property developer, four people familiar with the plan said.
A spokesperson for Ping An said the company had not been approached by the government and denied the information reported by Reuters.
Oil prices slid to more than three-month lows on concern over waning U.S. and Chinese demand, while gold prices retreated for a third straight session as yields on the short end of Treasuries rose and on longer-dated notes fell.
futures settled down $2.07 to $79.54 a barrel and lost $2.04 to settle at $75.33.
The two-year Treasury yield, which reflects interest rate expectations, rose 1.4 basis points to 4.932%, while the yield on the benchmark 10-year note was down 5.6 basis points at 4.515%.
U.S. settled 0.8% lower at $1,957.80 an ounce.
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