Stocks fall, dollar stabilizes as market assesses Fed rate policy

NEW YORK/LONDON, Dec 6 (Reuters) – Global stocks headed for a third straight day of losses on Tuesday and the dollar held steady as the market assesses how long the Federal Reserve is keeping interest rates higher. high and the likelihood that the policy will cause a recession.

US equities trailed European equities lower, with all sectors in the red except for the defensive Utilities sector (.SPLRCU), which oscillated between gains and losses.

The US-centric MSCI All Country World Index (.MIWD00000PUS) fell 1.06%, on track for a third straight session of declines after hitting a three-month high last week.

Treasury yields fell, but more on the long end of maturities than on the short end, which steepened the inverted yield curve, a market indicator of an impending recession. The spread between two- and ten-year bond yields was -82.6 basis points.

The market needs to recognize that a recession is very likely a reality, not just a hypothesis, and that valuations need to come down, said Jason Pride, director of private wealth investments at Glenmede in Philadelphia.

“During recessions, markets on average sell for less than fair value, which they haven’t done yet,” Pride said. “There is not a single instance where a market bottomed out before the recession started.”

Data released on Monday showing U.S. service sector activity unexpectedly picked up in November and last week’s strong U.S. payrolls report raised doubts about how quickly the Fed would ease the restrictive monetary policy.

Futures shows that the market expects the Fed’s maximum terminal rate to reach 4.9951% next May, but in December 2023 it fell to 4.565% due to speculation that the Fed will cut rates to help the economy rebound from an expected slowdown in growth.

Wall Street was dragged lower by banking stocks and Meta Platforms Inc (META.O) after European Union regulators ruled its Facebook and Instagram units shouldn’t require users to accept personalized ads based on their digital activity.

The Dow Jones Industrial Average (.DJI) fell 0.79%, the S&P 500 (.SPX) 1.19% and the Nasdaq Composite (.IXIC) 1.57%. In Europe, the STOXX 600 index (.STOXX) lost 0.56%.

The dollar was virtually unchanged against the euro and the yen after strong gains on Monday as investors waited for the Fed’s expected 50 basis point rate hike next week.

The euro rose 0.24% to $1.0516, while the yen strengthened 0.22% to 136.44 to the dollar.

Eurozone government bond yields fell after two European Central Bank officials flagged inflation and rates could be on the verge of a spike ahead of a series of major policy decisions. central bank.

The ECB, Bank of England and Fed meet next week to discuss monetary policy. The Reserve Bank of Australia offered a preview of decisions ahead after raising interest rates to decade highs and sticking to a forecast of further hikes ahead.

All eyes will be on next Tuesday’s release of US Consumer Price Index data for November, which will provide some insight into the pace of inflation.

The yield on US 10-year bonds fell 4.2 basis points to 3.557%.

Oil prices fell in a volatile market as the dollar remained strong and economic uncertainty offset the bullish impact of a Russian oil price cap and the prospect of increased demand in China.

On Monday, crude futures posted their biggest daily decline in two weeks.

U.S. crude fell 2.24% to $75.21 a barrel and Brent to $80.70, down 2.39% on the day.

Spot gold added 0.3% to $1,774.09 an ounce.

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Reporting by Herbert Lash, additional reporting by Anshuman Daga in Singapore and Alun John in London; Editing by Simon Cameron-Moore, Angus MacSwan and Jonathan Oatis

Our standards: The Thomson Reuters Trust Principles.

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