Wall Street slumps on Fed remarks, bond scare

In this file photo the fearless girl statue and the New York Stock Exchange (NYSE) are pictured on April 20, 2020 at Wall Street in New York City. — AFP pic
In this file photo the fearless girl statue and the New York Stock Exchange (NYSE) are pictured on April 20, 2020 at Wall Street in New York City. — AFP pic

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NEW YORK, March 5 — Wall Street slumped yesterday and global stock markets declined after US Federal Reserve Chair Jerome Powell repeated his pledge to keep credit flowing until Americans are back to work, rebutting investors who have openly doubted he can stick to that promise once the pandemic passes.

Benchmarket US Treasury yields rose toward last week’s highs as Powell spoke, and the dollar hit a three-month high.

Oil prices spiked to their highest in over a year as Opec and its allies agreed to extend most oil output cuts into April, after deciding that the demand recovery from the pandemic remained fragile.

With Covid-19 vaccines rolling out and the government fiscal taps open “there is good reason to think we will make more progress soon” toward the Fed’s goals of maximum employment and 2 per cent sustained inflation, Powell told a Wall Street Journal forum.

But “even if that happens it will take substantial time,” Powell added.

The Dow Jones Industrial Average fell 345.95 points, or 1.11 per cent, to 30,924.14, the S&P 500 lost 51.25 points, or 1.34 per cent, to 3,768.47 and the Nasdaq Composite dropped 274.28 points, or 2.11 per cent, to 12,723.47.

“This market has already been weak and was looking for another excuse to sell,” said Dennis Dick, head of markets structure and a proprietary trader at Bright Trading LLC in Las Vegas, citing fear in equities markets for the past nine months. “Now, Powell gives them that excuse as well.”

The pan-European STOXX 600 index lost 0.37 per cent and MSCI’s gauge of stocks across the globe shed 1.62 per cent, its third day of losses.

Emerging market stocks lost 2.61 per cent. MSCI’s broadest index of Asia-Pacific shares outside Japan closed 2.63 per cent lower, while Japan’s Nikkei lost 2.13 per cent to its lowest since February 5.

Worries about loftier US bond yields have also hit global shares.

Powell said the increase was “notable” but he did not consider it a “disorderly” move, or one that pushed long-term rates so high the Fed might have to intervene to bring them down.

Benchmark 10-year notes last fell 21/32 in price to yield 1.5432 per cent, from 1.47 per cent late on Wednesday. They earlier touched their highest levels since a one-year high of 1.614 per cent set last week on bets on a strong economic recovery aided by government stimulus and progress in vaccination programmes.

The cost of borrowing US Treasuries in the overnight repurchase agreement, or repo market, went negative yesterday, analysts said, amid the bond market sell-off, which pointed to stress in money markets.

The 10-year UK Gilts yield was last at 0.733 per cent, after touching 0.775 per cent on Wednesday, near last week’s 11-month high of 0.836 per cent.

Germany’s 10-year yield was down 2 basis points to -0.33 per cent after rising 5 basis points on Wednesday.

Many Fed officials have downplayed the rise in Treasury yields in recent days, although Fed Governor Lael Brainard on Tuesday acknowledged that concerns over the possibility of a rapid rise in yields could dampen economic activity.

The dollar surged to three-month highs after Powell failed to express concern about a recent sell-off in US Treasuries as some traders had expected, resulting in higher bond yields and demand for the greenback.

The dollar index rose 0.562 per cent, with the euro down 0.77 per cent to US$1.1969 (RM4.86).

The Japanese yen weakened 0.83 per cent versus the greenback. Dollar/yen rose to 107.89, roughly a seven-month high, while sterling was last trading at US$1.3893, down 0.43 per cent on the day.

Rising Treasury yields pushed non-interest-bearing gold down 0.9 per cent. Spot gold dropped 0.7 per cent to US$1,698.70 an ounce, but still near a nine-month low.

The US Senate voted yesetrday to take up President Joe Biden’s US$1.9 trillion coronavirus aid bill, setting up what is likely to be a days-long debate.

Oil prices rose for a second straight session.

US crude recently rose 4.72 per cent to US$64.17 per barrel and Brent was at US$67.16, up 4.82 per cent on the day. — Reuters

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