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FILE PHOTO: Traders work on the floor of the NYSE in New York

MONEY & BUSINESS: Wall Street’s Fed headache lingers as stocks mixed, Treasuries gain

FILE PHOTO: Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., November 29, 2021. REUTERS/Brendan McDermid

January 6, 2022

By Lawrence Delevingne

BOSTON (Reuters) – Wall Street’s headache over the potential of a relatively fast pullback from stimulus by the U.S. Federal Reserve lingered Thursday morning as some stocks sold off again and government bond yields kept marching higher.

The Dow Jones Industrial Average fell 114.14 points, or 0.31%, to 36,292.97, the S&P 500 gained 7.21 points, or 0.15%, to 4,707.79 and the Nasdaq Composite added 56.92 points, or 0.38%, to 15,157.09.

Stocks fell sharply in Asia and Europe too, with Wall Street’s technology-heavy Nasdaq having plunged more than 3% the previous day.

Benchmark 10-year yields rose to 1.7530%, the highest since March 2021, and were last up slightly on the day to 1.7369%. U.S. 2-year yields, which track near-term rate expectations, rose to the highest since early March 2020, the start of the global spread of COVID-19, at 0.87%.

Minutes from the Fed’s December meeting had shown that a tight jobs market and unrelenting inflation could require the U.S. central bank to raise rates sooner than expected and begin reducing its overall asset holdings.

“This morning, we’re seeing a continuation of the activity to start 2022: long bond yields heading higher and higher growth/technology names selling off in response,” Ross Mayfield, Baird’s investment strategy analyst, said in an email.

“This makes sense, as transitioning to tighter monetary policy would necessarily have a negative impact on higher-growth, richly valued, longer-duration equities.”

Adding to the worries on Thursday was data from the U.S. Labor Department showing an increase in the number of Americans filing new claims for unemployment benefits last week, and the Institute for Supply Management noting that non-manufacturing activity fell in December.

Investors will now look ahead to a key U.S. jobs report on Friday, which will follow new euro zone inflation data that the European Central Bank will watch closely.


Global money markets are now pricing in three full Fed interest rate hikes in 2022, with the first expected as early as March. [/FRX]

Treasury yields rose along the curve on Thursday, as traders narrowed the odds on an early hike and prepared for the possibility of the Fed cutting its bond holdings.

In Europe, 10-year German Bund yields, which rolled over into a new benchmark, rose to -0.05%, the highest level since May 2019, Refinitiv data showed.

The dollar took a breather in its climb towards a 14-month high, after riding the tailwind of the Fed minutes. The dollar index last gained 0.079%, with the euro down 0.16% at $1.1296.

Cryptocurrencies were among the hardest hit in the overnight market selloff, with bitcoin nursing losses below the $43,000 levels after falling more than 5% overnight.

Gold prices slid to a one-week low as the Fed minutes boosted alternative safe havens such as the dollar and Treasury yields.

Spot gold dropped 1.1% to $1,790.21 an ounce. U.S. gold futures fell 1.93% to $1,789.30 an ounce.

In commodity markets, oil prices rose sharply, extending a rally from the previous session, on escalating unrest in OPEC+ oil producer Kazakhstan and supply outages in Libya.

U.S. crude rose 2.36% to $79.69 per barrel and Brent was at $82.24, up 1.78% on the day.

(Reporting by Lawrence Delevingne; Editing by John Stonestreet and Lisa Shumaker)

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