US Stocks Pare Drop After Comments From Fed’s Daly: Markets Wrap

US Stocks Pare Drop After Comments From Fed's Daly: Markets Wrap

(Bloomberg) — US stocks trimmed declines after San Francisco Federal Reserve President Mary Daly warned that too much tightening could be “unnecessarily painful” for the economy. Mounting concerns that China may tighten Covid curbs after a string of reported deaths continued to weigh on investors.

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The S&P 500 and the Nasdaq 100 fall, but are off session lows. Crude futures pared losses after Saudi Arabia denied a report that it is discussing an oil-production increase for the OPEC+ meeting next month. The dollar gained as investors sought haven assets. Treasury yield dipped.

Investors are closely watching what Fed speakers say about the outlook for interest rates. While several central bank officials in recent days have reiterated their resolve to keep raising rates, they differ on how far they’ll go. On Monday, Daly said that officials will need to be mindful of the lags with which monetary policy is transmitted through the economy as they raise interest rates further in order to drive down inflation.

“This shouldn’t be regarded as a pivot or anything new,” Michael Contopoulos, director of fixed income at Richard Bernstein Advisors, said about Daly’s comments. “A real pivot is when the Fed starts to cut rates and/or pause quantitative tightening. That is no where in sight.”

Atlanta Fed President Raphael Bostic, meanwhile, has said he favors slowing the pace of interest rate increases, with no more than 1 percentage point more of hikes, to try to ensure the economy has a soft landing. Boston Fed President Susan Collins has reiterated her view that options are open for the size of the December interest-rate increase, including the possibility of a 75 basis-point move.

Traders this week will also be looking to minutes of the most recent Fed policy meeting for further clues on the central bank’s path ahead.

“For the Fed right now, if we do get some slowing in inflation — which it seems like we might — but you’re not seeing it in the slowing of service inflation, that’s related to a tight labor market,” Veronica Clark , economist at Citigroup, said Monday on Bloomberg Television. “You do need to see that loosening in the labor market data.”

Meanwhile, China saw its first Covid-related death in almost six months on Saturday and another two were reported on Sunday. Worsening outbreaks across the nation are stoking concerns that authorities may again resort to harsh restrictions. Shutdowns could have a negative impact on supply chain dynamics and possibly exacerbate inflation issues across economies.

“China is such a large portion of global growth. It matters. So that’s why what news was this morning I think was so important,” Lindsay Rosner, multi-sector portfolio manager at PGIM Fixed Income, said by phone. “There is not an expectation in the market of a complete removal of the zero Covid policy. But I think if Covid has taught any of us anything is that it can’t be predetermined.”

Key events this week:

  • US Richmond Fed manufacturing index, Tuesday

  • OECD releases Economic Outlook, Tuesday

  • Fed’s Loretta Mester and James Bullard speak, Tuesday

  • S&P Global PMIs: US, Euro area, UK, Wednesday

  • US MBA mortgage applications, durable goods, initial jobless claims, University of Michigan sentiment, new home sales, Wednesday

  • Minutes of the Federal Reserve’s Nov. 1-2 meeting, Wednesday

  • ECB publishes account of its October policy meeting, Thursday

  • US stock and bond markets are closed for the Thanksgiving holiday, Thursday

  • US stock and bond markets close early, Friday

Some of the main moves in markets:

Inventory

  • The S&P 500 fell 0.2% as of 1:48 pm New York time

  • The Nasdaq 100 fell 0.8%

  • The Dow Jones Industrial Average rose 0.1%

  • The MSCI World index rose 0.6%

Currencies

  • The Bloomberg Dollar Spot Index pink 0.8%

  • The euro fell 0.9% to $1.0235

  • The British pound fell 0.7% to $1.1803

  • The Japanese yen fell 1.3% to 142.16 per dollar

Cryptocurrencies

  • Bitcoin fell 1.8% to $15,963.78

  • Ether fell 3.4% to $1,102.52

Leaps

  • The yield on 10-year Treasuries was little changed at 3.83%

  • Germany’s 10-year yield declined two basis points to 1.99%

  • Britain’s 10-year yield declined five basis points to 3.19%

Commodities

  • West Texas Intermediate crude was little changed

  • Gold futures fell 0.8% to $1,755.20 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Isabelle Lee, John Viljoen and Catarina Saraiva.

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