Stocks Decline in Response to Federal Reserve, Gilts Plummet as Rate Expectations Soar: Market Summary

**Global Stocks Drop Following Hawkish Fed Commentary, UK Bonds Fall**

Global markets experienced declines in response to unexpectedly hawkish commentary from the Federal Reserve. Both European and Asian stocks saw widespread declines, while S&P 500 futures indicated a continuation of Wednesday’s losses on Wall Street. In the UK, yields on 10-year government bonds reached their highest level since the gilts crisis in October, driven by concerns over Prime Minister Liz Truss’s fiscal plan. Traders have fully priced in a terminal Bank of England rate of 6.5% by March, the highest level in 25 years according to interest-rate swaps data.

**US Tightening Policy Raises Investor Concerns**

Investor concerns over tightening policy also extend to the United States. Minutes from the June Federal Reserve meeting revealed a divide among policymakers over the decision to pause rate hikes, with voting members on track to raise rates this month. Traders are now awaiting US jobs data, which will provide further insight into the future of monetary policy. Sue Trinh, co-head of global macro strategy for Manulife Investment Management, states that the Fed is unlikely to pivot anytime soon, especially with core inflation levels being approximately half of current levels. She suggests adopting a more defensive stance in the short term.

**US Employment Reports to Impact Market Sentiment**

Several US employment reports are expected to impact market sentiment this week. The JOLTS report of job openings is anticipated to show a tapering off of available positions, while a separate measure of jobless claims is expected to increase, signaling a cooling labor market. All eyes will then turn to Friday’s highly awaited monthly nonfarm payrolls report.

**Treasury Yields Rise, Janet Yellen Visits Beijing**

Treasury yields across the curve have risen further following the release of the Fed minutes. The policy-sensitive two-year rate has increased to 4.96%. Treasury Secretary Janet Yellen is scheduled to visit Beijing in an effort to mend relations between the world’s two largest economies.

**China Supports Yuan, Investors Anticipate Weak Stimulus**

China’s central bank has extended support for the yuan by establishing a stronger daily reference rate. Moreover, China’s largest banks have reduced rates on the country’s $453 billion in corporate US dollar deposits, marking the second cut in a matter of weeks. However, Chinese investors do not anticipate aggressive stimulus or major economic reforms at an upcoming key meeting, according to Goldman Sachs Group Inc. There is hope for clearer signals of support from the government to help rebuild confidence in the economy and private sectors.

**Key Events to Watch This Week**

This week, market participants should closely monitor several key events:

– US initial jobless claims, trade, ISM services, and job openings are scheduled for Thursday.
– Dallas Fed President Lorie Logan will be speaking on a panel about policy challenges for central banks at a CEBRA meeting on Thursday.
– The US unemployment rate and nonfarm payrolls data will be released on Friday.
– ECB President Christine Lagarde will address an event in France on Friday.

**Market Movements: Stocks, Currencies, Cryptocurrencies, Bonds, and Commodities**

Here are some of the main movements in global markets:

**Stocks:**
– The Stoxx Europe 600 fell 0.8%.
– S&P 500 futures declined by 0.5%.
– Nasdaq 100 futures decreased by 0.6%.
– Dow Jones Industrial Average futures fell by 0.4%.
– The MSCI Asia Pacific Index and MSCI Emerging Markets Index both dropped by 1.3%.

**Currencies:**
– The Bloomberg Dollar Spot Index remained relatively stable.
– The euro held steady at $1.0861.
– The Japanese yen rose 0.6% to 143.72 per dollar.
– The offshore yuan experienced little change at 7.2575 per dollar.
– The British pound increased by 0.1% to $1.2717.

**Cryptocurrencies:**
– Bitcoin rose 1.1% to $30,818.73.
– Ether rose 0.8% to $1,926.47.

**Bonds:**
– The yield on 10-year Treasuries rose by three basis points to 3.96%.
– Germany’s 10-year yield increased by four basis points to 2.52%.
– Britain’s 10-year yield advanced seven basis points to 4.57%.

**Commodities:**
– Brent crude oil remained relatively stable.
– Spot gold rose 0.3% to $1,920.32 per ounce.

**Conclusion**

Global markets reacted negatively to the Federal Reserve’s hawkish commentary, with stocks declining and UK government bond yields rising. Concerns over tightening policies were also prevalent in the US, where employment reports will provide further insight into future monetary policy decisions. Treasury yields increased, while Treasury Secretary Janet Yellen’s visit to Beijing aimed to repair US-China relations. China’s central bank extended support for the yuan, but investors do not anticipate aggressive stimulus. Key events to watch include US employment reports and ECB President Christine Lagarde’s address. Market movements across stocks, currencies, cryptocurrencies, bonds, and commodities reflect the general trend of declines and stability in various sectors.