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US stocks and bonds fall as traders weigh monetary policy


U.S. stocks and bonds reversed growth from the previous session as the surge in relief since the Federal Reserve’s latest interest rate decision was marred by concerns about monetary policy prospects.

The S&P 500 fell 2.4 percent, closing 3 percent higher on Wednesday, the best one-day figure since May 2020. The Nasdaq Composite Technology fell 3.3 percent.

The US Federal Reserve on Wednesday announced its first interest rate increase of 0.5 percentage points in more than 20 years, while Fed Chairman Jay Powell also ruled out a 0.75 percentage point increase at future meetings.

“It wasn’t really a dove signal, but market sentiment has been subdued, the most pessimistic in decades, so it wasn’t surprising to see a rebound from that level of pessimism,” said Trevor Gritham, head of multi-assets at Royal London, referring to Wednesday’s moves. .

“But you still have a nasty background where central banks are not your friends,” he added. “Inflation really needs to change to sustain market conditions,” reaching a 40-year high of 8.5 percent in March.

This year, S&P has fallen by more than a tenth as the prospect of rising borrowing costs and sustained high inflation threaten corporate profits. Nasdaq Composite technology fell 20 percent.

Yields on 10-year U.S. Treasury bonds, which investors use as a benchmark to value many other financial assets, jumped 0.13 percentage points to 3.04 percent. Treasury-back yields have been very volatile in recent weeks as uncertain inflation and interest rates have made it difficult to invest in fixed-income securities.

Powell said Wednesday that a neutral stance in monetary policy that does not speed up or slow down the economy “cannot be something we can identify with any accuracy.”

The Fed chairman also “sounded very determined to raise rates until he sees progress in inflation,” said Rose Wahba, head of the fixed-income division at Carmignac. “And [he] did not give an idea of ​​where the Fed should stop. ”

The dollar index, which measures the U.S. currency against six others, rose 0.9 percent, holding a nearly 20-year high.

In the UK, the sterling fell 2.1 percent against the dollar to just under $ 1.24, the weakest level since mid-2020, after the Bank of England said the country’s economy could enter a recession in this year.

Central Bank of Great Britain raised its core interest rate on loans on Thursday by a quarter point to 1 percent, the fourth consecutive increase, but inflation is also projected to exceed 10 percent.

“This is really the sum of all our fears” regarding the UK economy, said Roger Lee, head of British capital strategy at Investec. “Growth forecasts are lowered, inflation expectations are raised, interest rates continue to rise.”

The UK rose when traders expected the Bank of England to maintain relatively low borrowing costs to protect the economy. The two-year yield, which tracks monetary policy expectations, fell 0.13 percentage points to 1.52 percent. Yields on 10-year gold fell 0.05 percentage points to 1.92 percent.

In Europe, the Stoxx 600 regional stock index fell 0.1 percent. The British FTSE 100, which includes exporters whose revenues increased as a result of the weaker pound, rose 0.8 percent.

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