Treasuries Fall on Powell; Tech Selloff Spreads: Markets Wrap

(Bloomberg) -- Treasury yields jumped and U.S. index futures signaled a continued selloff in technology shares as traders pruned bets for a dovish-for-longer Federal Reserve after the renomination of Jerome Powell as its chair.

Contracts on the Nasdaq 100 Index fell 0.3% after Monday’s last-hour selloff in technology stocks. The subgroup was the worst performer in Europe Tuesday, sending the region’s benchmark to a three-week low. A currency crisis deepened in Turkey, with the lira weakening past 12 per U.S. dollar. Oil slid with countries from the U.S. to India looking to tap their strategic reserves. Zoom Video Communications Inc. lost 9% in premarket trading on slowing growth.

Investors are reducing expectations for a deeper dovish stance by the Fed after Powell was selected for a second term. The chair himself sought to strike a balance in his policy approach saying the central bank would use tools at its disposal to support the economy as well as to prevent inflation from becoming entrenched. 

“While investors no longer have to wonder about who will be leading the Federal Reserve for the next few years, the next big dilemma the central bank faces is how to normalize monetary policy without upsetting markets,” Robert Schein, chief investment officer at Blanke Schein Wealth Management, wrote in an email. 

U.S. Treasuries dropped. The two-year rate jumped five basis points, helping to flatten the yield curve. The dollar traded at its highest level since September 2020. The Japanese yen briefly fell past 115 per dollar for the first time since 2017.

Fed Bank of Atlanta President Raphael Bostic said Monday the U.S. central bank may need to speed up the removal of monetary stimulus and allow for an earlier-than-planned increase in interest rates.

Following Powell’s renomination, “the market has unwound hedges against a more ‘dovish’ personnel shift,” Chris Weston, head of research with Pepperstone Financial Pty Ltd., wrote in a note. 

Meanwhile, Francois Villeroy de Galhau, a member of the European Central Bank’s governing council, said the monetary authority is “serious” about ending its emergency bond-buying program in March.

Turkey’s lira sank the most in the world, reaching yet another record low, after President Recep Tayyip Erdogan defended his pursuit of lower interest rates to boost economic growth and job creation. His unorthodox view that higher rates fuel inflation has sent the currency down for nine successive years, spurring a 39% plunge in 2021 alone.

Zoom Video dropped in early New York trading as analysts including from Citigroup Inc. said slowing incremental growth and the lowest new-customer additions in three years were concerning. Urban Outfitters Inc. tumbled 11% as supply-chain disruptions and pressure from higher costs weighed on third-quarter results.

Oil futures in New York fell below $76 a barrel. Traders expected announcements by the U.S. and other major consumers about releasing emergency reserves in a bid to tame high fuel prices and rampant inflation. India was said to be planning a five-million barrel release. The U.S., Japan, South Korea and even China may open up supplies.

Iron ore extended a rebound from an 18-month low on bets stronger-than-expected steel output cuts so far this year mean China’s steel mills are primed to lift volumes next month.

For more market analysis, read our MLIV blog.

Here are some key events this week:

• Eurozone, U.S. PMI data Tuesday
• Reserve Bank of New Zealand rate decision Wednesday
• U.S. FOMC minutes, consumer income, wholesale inventories, new home sales, GDP, initial jobless claims, U.S. durable goods, University of Michigan consumer sentiment. All Wednesday
• Bank of Korea policy decision Thursday
• U.S. Thanksgiving Day: U.S. equity, bond markets closed Thursday
• Bank of England Governor Andrew Bailey speaks with Mohamed El Erian at a Cambridge Union event. Thursday

Some of the main moves in markets:

Stocks

• Futures on the S&P 500 were little changed as of 6:59 a.m. New York time
• Futures on the Nasdaq 100 fell 0.3%
• Futures on the Dow Jones Industrial Average were little changed
• The Stoxx Europe 600 fell 0.8%
• The MSCI World index fell 0.2%

Currencies

• The Bloomberg Dollar Spot Index rose 0.1%
• The euro was little changed at $1.1243
• The British pound fell 0.3% to $1.3358
• The Japanese yen was little changed at 114.99 per dollar

Bonds

• The yield on 10-year Treasuries advanced two basis points to 1.65%
• Germany’s 10-year yield advanced six basis points to -0.24%
• Britain’s 10-year yield advanced four basis points to 0.97%

Commodities

• West Texas Intermediate crude fell 1.3% to $75.76 a barrel
• Gold futures fell 0.7% to $1,796.90 an ounce

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