BNN Bloomberg's closing bell update: Dec. 5, 2022
Stocks kicked off the week with losses and bond yields climbed as a U.S. services gauge unexpectedly rose, fueling speculation the Federal Reserve will keep its policy tight to tame stubborn inflation.
The selloff spread throughout all major S&P 500 sectors, with about 95 per cent of the gauge’s companies in the red. Tesla Inc. tumbled almost 6.5 per cent as Bloomberg News reported the electric-vehicle giant plans to lower production at its Shanghai factory. A slide in the Russell 2000 of small caps approached 3 per cent.
Treasuries slumped across the curve, driving 10-year yields to 3.6 per cent. Swaps showed higher expectations on where the Fed terminal rate will be, with the market indicating a peak above 5 per cent in the middle of 2023. The current benchmark sits in a range between 3.75 per cent and 4 per cent. The dollar halted a four-day rout.
“Good economic news is bad news for stocks as it will keep the risk elevated that rates might have to end up higher later next year,” said Ed Moya, senior market analyst at Oanda.
Equities also came under pressure on the view that a rally that drove the S&P 500 above a key technical indicator last week would be overdone given the current set of economic risks.
Morgan Stanley’s Michael Wilson, one of the U.S. stock market’s most-vocal skeptics, says investors are better off booking profits. “We are now sellers again,” the strategist and his colleagues wrote.
Traders are also anxiously awaiting Friday’s report U.S. producer prices -- one of the final pieces of data Fed officials will see before their Dec. 13-14 policy meeting. Inflation numbers over the past month have indicated pressures are slowly cooling, but remain very elevated.
An analysis of every S&P 500 bear market since 1960 suggests it could easily take over two years to recoup the index’s prior high, especially if recession plagues the near-term outlook, Bloomberg Intelligence strategists Gina Martin Adams and Michael Casper said.
“Markets are likely to remain volatile, and we do not think the economic conditions for a sustained upturn are yet in place,” said Mark Haefele, chief investment officer at UBS Global Wealth Management. “In our view, economic growth is likely to slow further next year as the cumulative impact of Fed rate hikes weighs on activity.”
Meantime, a majority of 291 respondents to the latest MLIV Pulse survey said leveraged loans would be the canary in the coal mine to indicate that corporate credit quality is getting worse.
About 28 per cent of survey respondents expect defaults to jump significantly if U.S. rates peak at or below 5 per cent, which is about where the market bets the Fed will stop hiking. Another 63 per cent see defaults surging if rates peak above 5 per cent.
Elsewhere, oil erased gains as risk-averse investors pared crude positions ahead of the end of the year.
Key events this week:
- U.S. trade, Tuesday
- EIA crude oil inventory report, Wednesday
- Euro zone GDP, Wednesday
- U.S. MBA mortgage applications, Wednesday
- ECB President Christine Lagarde speaks, Thursday
- U.S. initial jobless claims, Thursday
- U.S. PPI, wholesale inventories, University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
- The S&P 500 fell 1.8 per cent as of 4 p.m. New York time
- The Nasdaq 100 fell 1.7 per cent
- The Dow Jones Industrial Average fell 1.4 per cent
- The MSCI World index fell 1.2 per cent
- The Bloomberg Dollar Spot Index rose 0.8 per cent
- The euro fell 0.5 per cent to US$1.0486
- The British pound fell 0.8 per cent to US$1.2180
- The Japanese yen fell 1.9 per cent to 136.80 per dollar
- Bitcoin fell 1 per cent to US$16,938.17
- Ether fell 1.6 per cent to US$1,256.18
- The yield on 10-year Treasuries advanced 11 basis points to 3.60 per cent
- Germany’s 10-year yield advanced two basis points to 1.88 per cent
- Britain’s 10-year yield declined five basis points to 3.10 per cent
- West Texas Intermediate crude fell 3.3 per cent to US$77.36 a barrel
- Gold futures fell 1.6 per cent to US$1,780.20 an ounce