NEW YORK, 2nd April, 2024 (WAM) -- Global bonds slid and equities faltered as traders priced the possibility of fewer interest-rate cuts this year from the Federal Reserve, according to a Bloomberg report on Tuesday.
Treasury 10-year yields rose about three basis points, adding to a 10 basis-point jump on Monday, when data showed an unexpected expansion in US manufacturing for the first time since September 2022. The impact was felt worldwide, with British 10-year yields climbing as much as 12 basis points, and German borrowing costs up almost 10 basis points.
In equity markets, Europe’s main Stoxx 600 index ceded earlier gains to trade around flat, while contracts on the S&P 500 slid about 0.2 percent.
Traders reckon now that the Fed will deliver fewer than three rate cuts this year, a view that could be bolstered if data at the end of this week show the US economy continued to add jobs at a healthy clip in March. They also see a good chance the central bank will push back the timing of its first rate cut, with odds of a June cut briefly falling below 50 percent on Monday.
Fed Chair Jerome Powell — who is due to speak Wednesday — said Friday that officials are awaiting more evidence prices are contained, adding that it would not be appropriate to lower rates until officials are sure inflation is in check.
“The Fed is a difficult spot right now because if it eases too soon it could reignite the economy and inflation comes back, but if it does not ease quickly enough, you get a bigger-than-expected economic slowdown,” said Andrew Pease, global head of investment strategy at Russell Investments Ltd. “At the margin, the data noise could convince the Fed to wait beyond June.”
Expectations of higher-for-longer Fed rates kept the dollar close to six-week highs against a basket of Group-of-Ten peers. The yen also stayed in focus, as the Japanese currency slipped further toward the 152-per-dollar level that many traders believe could force authorities’ hand toward intervention.
Markets are also keeping a close eye on geopolitical developments, as gold prices surged to a record high on Tueday. Oil rallied above US$85.
In emerging markets, the Turkish lira surged against the dollar after President Recep Tayyip Erdogan indicated his economic team will be allowed to stay the course with orthodox monetary policies.
Pressure is continuing to build on Bitcoin, which shed 5 percent to trade below US$67,000, having fallen about 10 percent from its mid-March peaks. Crypto-related stocks fell in US premarket trading, with Coinbase Global down 2.5 percent.
US health insurance stocks were the other big premarket losers, after regulators did not boost payments for private Medicare plans like the industry had come to expect.