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Global Stock Indexes Fall, U.S. Dollar Rises on Fed Rate Hike Signals
(CTN News) – Global stock indexes experienced a decline, while the U.S. dollar strengthened on Friday as investors processed statements from Federal Reserve officials signaling forthcoming interest rate hikes.
U.S. Stock Indexes Experience Weekly Losses as Nasdaq’s Winning Streak Ends
Major U.S. stock indexes concluded the week with losses, as the Nasdaq snapped its eight-week winning streak and the S&P 500 ended a five-week period of gains.
In a Reuters interview, San Francisco Fed Bank President Mary Daly expressed that two more rate hikes in the current year are a “very reasonable” projection.
Federal Reserve Chair Jerome Powell’s testimony to U.S. lawmakers also indicated that the central bank had not completed its tightening cycle, although he reassured a cautious approach. Wall Street saw the Nasdaq leading losses, and all major sectors of the S&P 500 closed lower for the day.
The Dow Jones Industrial Average (.DJI) declined by 219.28 points, or 0.65%, closing at 33,727.43. The S&P 500 (.SPX) lost 33.56 points, or 0.77%, ending at 4,348.33. The Nasdaq Composite (.IXIC) dropped 138.09 points, or 1.01%, reaching 13,492.52.
European Stock Indexes and Global Stocks Decline in Response to Fed Comments
Across the Atlantic, the pan-European STOXX 600 index (.STOXX) experienced a 0.34% decline, while MSCI’s global stock gauge (.MIWD00000PUS) shed 0.95%.
Treasury yields fell as the market factored in the possibility of at least one more Federal Reserve rate hike shortly and considered the potential impact of weaker-than-expected growth in the eurozone.
Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets in New York, noted that the Treasury market reflects the acknowledgment of monetary policymakers’ willingness to take on the risk of an economic slowdown in their pursuit of price stability. Benchmark 10-year notes decreased by 6.2 basis points to 3.737% from 3.799% on Thursday.
Euro zone government bond yields declined following news of notable slowdowns in German business activity, measured by purchasing managers indexes (PMI), and the contraction of French business activity for the first time in five months.
The foreign exchange market was affected by disappointing business activity data worldwide, leading to a souring of risk sentiment.
Data revealed that U.S. business activity in June reached a three-month low, with services growth easing for the first time this year and the manufacturing sector experiencing further contraction. Consequently, the dollar index rose by 0.469%, with the euro declining by 0.58% to $1.0892.
Oil prices ended lower for the day and recorded a weekly decline as traders grew concerned about the demand outlook. Brent crude fell by 29 cents, settling at $73.85 a barrel, while U.S. West Texas Intermediate (WTI) crude slipped by 35 cents, reaching $69.16.
The combination of Federal Reserve officials signaling additional interest rate hikes and weaker global business activity data weighed on investor sentiment, leading to a decline in global stock indexes. The U.S. dollar, seen as a safe-haven currency, gained strength against other major currencies, including the euro.
The comments from San Francisco Fed Bank President Mary Daly, expressing support for two more rate hikes this year, affirmed market expectations of a more hawkish monetary policy stance.
Federal Reserve Chair Jerome Powell’s testimony reinforced this sentiment by suggesting that the central bank has not completed its tightening cycle, albeit with a cautious approach.
Wall Street Witnesses Losses as Nasdaq Leads the Downfall
The Nasdaq experienced the sharpest losses on Wall Street, ending its eight-week winning streak. The S&P 500 also concluded a five-week period of gains. All major sectors of the S&P 500 closed lower for the day, contributing to the overall negative sentiment in the market.
The impact of these developments was felt beyond the U.S. market. The pan-European STOXX 600 index and MSCI’s global stock gauge both recorded declines, reflecting the broader concerns among investors.
Eurozone government bond yields fell in response to the German business activity’s slowdown and the French business activity’s contraction, signaling potential economic headwinds in the region.
Meanwhile, the disappointing global business activity data further dampened risk sentiment in the foreign exchange market. The U.S. dollar strengthened against the euro, with the dollar index rising and the euro falling to $1.0892.
Additionally, falling oil prices added to market concerns. Worries about demand, influenced by the combination of economic uncertainties and the potential impact of higher interest rates, contributed to the decline in oil prices. Brent crude and U.S. WTI crude ended the day lower and posted weekly declines.
Overall, the market reaction reflected investors’ adjustment to the prospect of further interest rate hikes by the Federal Reserve and concerns about global business activity and its potential impact on economic growth and demand. These factors led to a decline in global stock indexes, a strengthening of the U.S. dollar, and a decrease in oil prices.
