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Monday, June 27, 2022

Stocks Drop, Bonds Surge With All Eyes on Powell: Markets Wrap

(Bloomberg) — US stocks fell and Treasuries advanced as investors rushed to haven assets ahead of Federal Reserve Chair Jerome Powell’s testimony to Congress where he’s expected to reiterate his commitment to curb inflation, adding to fears that the central bank’s aggressive path of interest rate hikes could tip the economy into a recession.

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The S&P 500 dropped, in a reversal from Tuesday’s bounce, and the tech-heavy Nasdaq 100 also fell. Treasury yields declined with the 10-year yield hovering around 3.16%. And the dollar was little changed after earlier gains while other safe haven assets like gold gained.

The S&P 500 is poised for its worst first half since Richard Nixon’s presidency. With just seven trading days left until the end of June, the index is down 21% since the beginning of the year as of Wednesday’s close, a scale unmatched by any start to a year going back to 1970, according to data compiled by Bloomberg.

Optimism is evaporating that policy makers can achieve a soft landing as they navigate a course of aggressive monetary tightening to tame inflation. All eyes are on Powell as he speaks to lawmakers Wednesday. Fears about the economy spread to commodities, putting oil in line for a monthly loss.

“This morning’s market action has recession worries written all over it,” wrote Peter Boockvar, chief investment officer at Bleakley Advisory Group. Bonds are rallying, stocks are lower, crude oil and copper are trading down and the dollar is rallying again.”

The market continues to be skeptical about the outlook for risk assets. Deutsche Bank AG’s Chief Executive Officer Christian Sewing joined a growing chorus of executives and policy makers who warn that the global economy may be headed for a recession as central banks step up efforts to curb inflation.

West Texas Intermediate crude tumbled below $103 a barrel, with prices falling alongside other raw materials including copper. Concerns about a broad economic slowdown are eclipsing the fallout from the war in Ukraine and signs of still-tight supply.

President Joe Biden plans call on Congress to enact a gasoline tax holiday to cool soaring pump prices and alleviate the pressure on consumers.

In Europe, stocks fell for the first day this week as miners and energy tumbled with commodity prices.

How will the second half of this year play out for major asset classes? We are re-running MLIV’s 2022 asset survey from December to see how street views have evolved amid the turmoil and volatility in the past few months. Click here to participate anonymously.

What to watch this week:

  • Fed Chair Jerome Powell semi-annual Senate testimony, Wednesday

  • Powell US House testimony, Thursday

  • US initial jobless claims, Thursday

  • PMIs for euro zone, France, Germany, UK, Australia, Thursday

  • ECB economic bulletin, Thursday

  • US University of Michigan consumer sentiment, Friday

  • RBA’s Lowe speaks on panel, Friday

Some of the main moves in markets:

Stocks

  • The S&P 500 fell 1% as of 9:31 a.m. New York time

  • The Nasdaq 100 fell 0.9%

  • The Dow Jones Industrial Average fell 1%

  • The Stoxx Europe 600 fell 1.5%

  • The MSCI World index fell 1.3%

Currencies

  • The Bloomberg Dollar Spot Index was little changed

  • The euro was little changed at $1.0542

  • The British pound fell 0.2% to $1.2255

  • The Japanese yen rose 0.4% to 136.08 per dollar

Bonds

  • The yield on 10-year Treasuries declined 11 basis points to 3.16%

  • Germany’s 10-year yield declined 15 basis points to 1.62%

  • Britain’s 10-year yield declined 17 basis points to 2.48%

Commodities

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