Updated at 12:05 PM EST
U.S. stocks extended their decline on Friday as the dollar hit a new two-year high against a basket of its global peers and Treasury bond yields rose further as traders reacted to hawkish remarks from officials of the central bank in a context of slowing signals of economic growth.
IN what is likely his final public comments ahead of next week’s policy meeting, Federal Reserve Chairman Jerome Powell told a panel at the International Monetary Fund’s Spring Meetings in Washington that there was a case for “early loading” rate hikes, adding that a 50 basis point move would be on the table.”
CME Group’s FedWatch tool now suggests a nearly 100% chance of a move of this magnitude early next month, which would take the base federal funds rate to a range of 0.75% to 1%, with a 90% chance of a similar move in June.
The remarks reversed gains in U.S. stocks on Thursday afternoon, with the Dow posting a loss of 370 points and the S&P 500 closing down 66 points to extend its April decline to 3.02%.
“The Fed is starting to realize that 2% is not a realistic short term target. They are in a tough spot because the known unknowns are something they cannot control, i. ‘Ukraine, China’s supply chains and spillover effects,’ said Rob Daly, director of fixed income at Glenmede Investment Management.
“Going above neutral or adjusting neutral rates is not out of the realm of possibility, and the likelihood of it happening has only increased.” he added.
European Central Bank President Christine Lagarde also suggested that her colleagues could start rate hikes in July – much sooner than expected – to tame the highest inflation rates on record in the eurozone.
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His comments came just ahead of data showing a slowdown in manufacturing activity in the region, based on PMI readings from S&P Global, although strong data from the services sector continued to provide support. PMI data for the United States, released at 9:45 a.m. Eastern time, showed activity slowing to the pace last seen earlier this year.
European stocks fell 1.3% at midday in Frankfurt, while the MSCI regional index excluding Japan fell 1.07% as global stocks fell to their lowest levels in five weeks.
Yields on benchmark 10-year notes jumped to 2.95% in overnight trading, while 2-year notes hit 2.762%, the highest since December 2018, as traders repriced interest-rate-sensitive assets following Powell’s comments in Washington, which coincided with the largest weekly outflow of funds from the stock market – $17.5 billion – so far this year, according to data from Bank of America.
The dollar index, which tracks the greenback against a basket of six global currencies, hit a new two-year high of 101.95 in New York. The benchmark 10 was last seen at 2.902% while the 2 was trading at 2.742%.
On Wall Street, the Dow Jones Industrial Average fell 630 points at midday while the S&P 500 fell 79 points. The tech-focused Nasdaq lost 205 points.
Twitter (TWTR) – Get the report from Twitter, Inc. stocks were again in focus following a New York Post report that suggested billionaire Tesla (TSLA) – Get the Tesla Inc report CEO Elon Musk could team up with private equity firm Thoma Bravo in its $46.6 billion takeover bid on the social media group.
Gap inc. (GPS) – Get the Gap, Inc. report Shares fell 20% after the clothing retailer cut its first-quarter sales forecast under the twin pressures of rising input costs and supply chain disruptions.
Instantaneous (INSTANTANEOUS) – Get the Class A report from Snap, Inc. shares fell in premarket trading after the instant messaging app maker warned that ad sales could be hit by soaring inflation, as well as supply chain challenges facing are facing businesses around the world, even as it forecast solid user growth.
American Express (AXP) – Get American Express company report edged down 1.5% after posting stronger-than-expected first-quarter profits but only confirming its full-year profit forecast, as travel and entertainment spending surged to recover levels last seen just before the 2020 pandemic.
Verizon Communications (VZ) – Get the report from Verizon Communications Inc. fell 5% after slightly higher-than-expected first-quarter earnings, which were dampened by the operator’s narrowing of full-year guidance for wireless revenue and profit growth.