Following remarks from Jerome Powell that sparked a decline in the S&P 500 for the third consecutive day and drove two-year Treasury yields to a brief peak of 5%, Asian markets are poised for a varied start. Futures in Australia and Hong Kong are leaning towards losses, whereas Japanese futures seem to be on the rise. The Federal Reserve's chief's statements have led to a surge in US yields to new highs for 2024, emphasizing the likelihood of a prolonged period before inflation confidence can be established, thereby suggesting a more extended duration of restrictive monetary policy. Concurrently, the dollar witnessed its most significant five-day rise since October 2022, amidst a deepening downturn in US stocks from their peak.
These observations mark a shift in Powell's stance following a series of inflation measurements surpassing expectations for three months in a row. According to Jeffrey Roach of LPL Financial, this indicates a longer-than-anticipated period of high rates by the US central bank. Krishna Guha from Evercore interprets Powell's comments as an alignment with a secondary plan, hinting at a potential delay in rate cuts, dependent on future inflation outcomes.
The S&P 500 experienced a drop to around 5,050, alongside a decline in the Golden Dragon index, which tracks US-listed Chinese firms, marking its third consecutive loss. Meanwhile, US 10-year yields climbed by seven basis points to 4.67%.
Market sentiment has shifted from anticipating as many as six rate cuts in 2024 to skepticism over any reductions, with only about 40 basis points of easing currently priced in for the year, further diminished following Powell's inflation commentary.
Amid these developments, the MOVE index, which measures Treasury volatility expectations, has hit its highest point since January, reflecting growing market apprehension.
However, some analysts, like James Demmert at Main Street Research, view the rising bond yields as indicators of a robust global economy and corporate earnings, suggesting that the stock market can still thrive without immediate rate cuts. This perspective encourages buying during the current market correction.
Corporate highlights include positive profit forecasts from United Airlines Holdings Inc., delays in Lockheed Martin Corp.'s delivery of F-35 jets, potential Chapter 11 bankruptcy considerations by Red Lobster, UnitedHealth Group Inc.'s earnings surpassing expectations, Johnson & Johnson's drug sales outperforming estimates, a slowdown in LVMH's sales growth, and Adidas AG's raised profit outlook for the year.
Key events to watch this week include Eurozone CPI, the Fed's Beige Book release, various Federal Reserve officials' speeches, Taiwan Semiconductor's earnings report, and updates on the US economic indicators.
Market movements have shown a mix of declines and gains across various indices and currencies, with notable changes in the Bloomberg Dollar Spot Index and the Australian dollar. Cryptocurrencies like Bitcoin and Ether have seen increases, while the yield on 10-year Treasuries and commodities like gold have experienced shifts.
This coverage was facilitated with input from Bloomberg Automation and additional reporting by Rita Nazareth.
