Stocks fall on Fed rate hike bets, yen hits fresh 24-year low

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LONDON, Sept 7 (Reuters) – European stock markets fell on Wednesday after U.S. economic data prompted traders to increase bets on Federal Reserve rate hikes, pushing the dollar to a 24-year high against to the Japanese yen.

US Treasury yields jumped and the dollar got a boost after data on Tuesday showed the US services industry rallied in August, bolstering expectations of aggressive rate hikes from the Fed. Markets were pricing in a 77% chance of a 75 basis point hike at the next Fed meeting . Read more

Markets were further hit in Asian trading by data showing Chinese export growth slowed in August. MSCI’s broadest non-Japan Asia-Pacific equity index fell to its lowest since mid-2020 (.MIAPJ0000PUS). Read more

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China’s exports and imports lost momentum as soaring inflation crippled foreign demand and new COVID-related curbs and heatwaves disrupted production, reigniting downside risks for a faltering economy. Read more

“Government bond yields across the board are rising and that’s putting pressure on equity markets,” said David Madden, market analyst at Equiti Capital.

“It also comes at a time of growing fears of a slowing global economy and bond traders expecting further rate hikes.”

At 11:34 GMT, the MSCI World Equity Index was down 0.4% on the day. (.MIWD00000PUS)while the European STOXX 600 was down 0.5% (.STOXX). London’s FTSE 100 fell 0.5% (.FTSE).

Wall Street futures rose slightly after two losing sessions. Read more

The US Dollar Index rose 0.3% on the day to 110.67, after hitting a 20-year high of 110.69 earlier in the session .

The 10-year US Treasury yield hit its highest since mid-June at 3.365%, before easing slightly .

“I wouldn’t be surprised if the Fed started to worry a bit about the strength of its domestic currency,” said David Madden of Equiti, who said a strong dollar could negatively impact US exports. .

The Japanese yen was at 144.95 yen per US dollar, its lowest level since August 1998. The Japanese government has said it wants to act if the “rapid and unilateral” movements in the foreign exchange market continue. Read more

The European Union proposed a cap on Russian gas prices on Wednesday hours after President Vladimir Putin threatened to cut off all supplies if they took such a step, raising the risk of rationing in some of the wealthiest countries of the world this winter. Read more

Yields on euro zone government bonds initially rose in early trading, expecting a 75 basis point rate hike from the European Central Bank on Thursday, but then fell as traders were withdrawing on these bets in reaction to several press articles, including one that said a 50 basis point rate hike remained on the table.

Germany’s 10-year yield was at 1.595%, having hit 1.645% earlier in the session, its highest level since late June.

“This hawkish stance by the ECB has had a huge impact on global markets,” Kristina Hooper, global market strategist at Invesco, said in emailed comments.

“This drove bond yields higher in the euro zone, but also arguably contributed to a rise in the US 10-year bond yield.”

The euro was down 0.2% at $0.9889 and the pound was down 0.8% against the stronger dollar at $1.1429.

Liz Truss, who took over as British prime minister on Tuesday, vowed to act immediately to help the economy, which is facing double-digit inflation and an expected long recession. Read more

Showing a correlation with traditional financial markets, the cryptocurrency bitcoin fell to its lowest since mid-June and the market capitalization of all cryptocurrencies fell below $1 trillion, according to the cryptocurrency provider. CoinGecko data.

The Bank of Canada is expected to announce a major rate hike later Wednesday as it struggles to rein in inflation at its highest level in nearly four decades. Read more

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(Reporting by Elizabeth Howcroft, editing by Angus MacSwan, William Maclean)

Our standards: The Thomson Reuters Trust Principles.

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