MSCI’s gauge of stocks across the globe declined 0.94%, pan-European STOXX 600 index shed 0.86%, Dow Jones Industrial Average dropped 0.76%, S&P 500 shed 0.80% and Nasdaq Composite lost 1.18%
The dollar rebounded further from last year’s sell-off and global stock markets extended a New Year decline on Wednesday as doubts about the chances of a soft landing mounted even as the Fed almost declared victory in taming inflation.
Policymakers appeared increasingly convinced last month that inflation was coming under control, but they expressed growing concern about “overly restrictive” monetary policy, according to minutes from the Fed’s December 12-13 meeting.
Richmond Fed President Thomas Barkin echoed similar optimism earlier in the day, saying a soft landing is “increasingly conceivable” as the Federal Reserve makes “real progress” toward taming inflation without inflicting major damage on the jobs market.
But the minutes and Barkin’s remarks failed to shake off uncertainty in equity markets, with the major Wall Street indexes selling off after the leading German, French, Italian and Spanish stock indexes earlier ended down over 1%.
The yield on benchmark 10-year Treasury notes briefly jumped above 4% as market optimism about deep interest rate cuts and their impact on the economy dipped.
The recent dramatic easing in monetary policy is likely to result in a “no landing,” or continued above-trend growth that will limit how much the Federal Reserve can cut rates, said Phillip Colmar, global strategist at MRB Partners.
Fed rate cuts are not required, even if Powell & Co. are determined to provide them, Colmar said, adding that monetary and financial conditions have not been restrictive. All major asset classes, including equities, indicate that monetary conditions are plentiful.
MSCI’s gauge of stocks across the globe declined 0.94%, while the pan-European STOXX 600 index shed 0.86%.
On Wall Street, the Dow Jones Industrial Average dropped 0.76%, the S&P 500 shed 0.80% and the Nasdaq Composite lost 1.18%.
Fed officials in December forecasted 75 bps of rate cuts this year, driving money-market bets for around double that amount amid market hopes that triggered a year-end rally in stocks and bonds.
Resilience in the U.S. labor market has kept a recession at bay. The government is expected to report on Friday that nonfarm payrolls rose by 168,000 jobs in December, according to a Reuters survey of economists, after rising 199,000 in November.
But labor market conditions are gradually easing. U.S. job openings declined by 62,000 to 8.79 million for the third successive month in November, the Labor Department said in its monthly Job Openings and Labor Turnover Survey, or JOLTS report.
