December 4, 2022

US stocks traded sharply lower on Thursday, erasing Wednesday’s gains, as bond yields rose again, with a positive impact from the Bank of England’s intervention in debt markets.

Meanwhile, economic data suggesting the US economy could sustain higher interest rates from the Federal Reserve also weighed on stocks.

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On Wednesday, the Dow Jones Industrial Average rose 549 points for its biggest percentage-point gain since July, while the S&P 500 and Nasdaq saw their biggest gains in more than a month.

what is driving the market

Equity markets were up on Wednesday after the Bank of England’s intervention to pacify UK bonds eased broader fixed income market tensions and revived hopes that central banks would be able to support markets in the face of severe dislocation. can intervene.

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But the impact of the BoE announcement appeared short-lived as US stocks again edged lower on Thursday amid widespread selling in global equity markets. After US sovereign bonds recorded their biggest one-day rally since the start of the COVID-19 pandemic, European sovereign bonds as well as Treasuries fell, sending yields higher around the world.

As a result, each of the S&P 500’s 11 sectors fell at least 1%, with consumer discretionary and information-technology stocks taking the biggest losses.

Apple Inc. AAPL

The weakness in shares was blamed for helping accelerate, while heavily contributing to the Nasdaq’s more than 3% decline, as reports about iPhone production cuts weighed on the megacap consumer-tech giant. had continued to do. Shares were down more than 4% in recent trading.

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US stocks jump without Apple’s help for the first time in more than 2 years

In a note to clients, a team of fixed-income strategists at Barclays explained why the market impact of the Bank of England intervention was so short-lived.

While bond-market interventions may have averted the crisis, it has changed little with respect to the macro backdrop, and investors are being forced to pay the price in the hope that a combination of monetary and fiscal stimulus will reduce inflation. can further increase the pressure.

,[A]After the short-covering and the first round of positions expire, we worry that the market will go back to fixing on one issue: open-ended monetary stimulus for the next few weeks now with a large fiscal stimulus. The team of Barclays macro strategists wrote.

As a result, borrowing costs are expected to rise as most of the world’s largest central banks rush to combat inflation, which in turn reduces demand for riskier assets.

Benchmark 10-Year Treasury Yield BX:TMUBMUSD10Y

UK gilts rose more than 9 basis points to 3.797% and for the same period UK gilts rose 9.6 basis points to 4.117%. Stokes 600 European Stock Index XX:SXXP

fell 1.4%.

Euro EURUSD . The US dollar also had an impact on the stocks on resuming its advance against

As a result, the ICE US Dollar Index DXY

It rose 0.2% to 112.79, slightly off its 20-year high of 114.50 hit midweek.

“The [dollar] still exhibits a strong, negative correlation to global equities, because in a world where monetary and fiscal policy are now at odds with each other, the value of collateral is being tested… which means the Fed has fewer equities. is targeting the market,” said a team of Citi analysts led by Jamie Fahy.

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Investor Concerns Revealed in the CBOE Volatility Index, or VIX, VIX,
A measure of expected S&P 500 volatility is known as Wall Street’s fear gauge. The VIX, whose long-term average is around 20, was hovering near 31, staying above 30 for most of the week.

In a note to clients on Thursday, Datatrack Research co-founder Nicolas Kolas said the VIX would need to be above 30 to signal a “tradable low” by “at least Friday.”

Wall Street’s ‘fear gauge’ could be the key to timing the next market rebound. Why over here

On the economic data front, the latest update to the second quarter GDP data confirmed that the US economy shrank at an annual clip of 0.6% during the second quarter.

However, a weekly report on US jobless benefits claims showed that the number of Americans applying for unemployment benefits fell from 16,000 to 193,000 in the week ending September 24, the lowest level since April.

Jobless claims data helped weigh on stocks by encouraging the Fed to stick with its plans to continue raising interest rates.

“Current labor market conditions will keep the Fed on track to aggressively tighten monetary policy at its next meeting in November,” said Jeffrey Roach, chief economist at LPL Financial.

US jobless claims at lowest level since April

Cleveland Fed Chair Loretta Meester said during an interview on CNBC that interest rates in the US have not yet reached restrictive territory and that the Fed has yet to reach a point where it should consider stopping rate hikes.

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St. Louis Fed Chairman James Bullard defended the Fed from claims whose policy of aggressive interest rate hikes is creating impossible conditions for foreign central banks.

Fed rate hike was no surprise to foreign central banks, says Bullard

San Francisco Fed Chair Mary Daly will make some comments at 4:45 p.m.

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