Stocks, US futures drop on post-Fed growth worry: markets wrap

Stocks fell Thursday after the Federal Reserve outlined plans to pare its balance sheet by more than $1 trillion a year while hiking interest rates, a campaign to curb inflation that could hit economic growth.

An Asia-Pacific share gauge fell over 1%, sapped by Japan. Losses were a little smaller in China, where officials have again signaled that they intend to loosen policy amid a Covid outbreak and property-market woes. US and European futures dipped after a tech-led Wall Street retreat Wednesday.

Treasuries rose, the yield curve was steeper and the dollar flirted with a three-week high as investors digested the minutes of the Fed’s March meeting.

The minutes signaled half-point rate increases are possible, and that the Fed is considering reducing its massive bond holdings at a maximum pace of $95 billion a month to tighten financial conditions.

Commodity markets continue to be whipsawed by disruptions sparked by Russia’s war in Ukraine and efforts to curb raw-material costs. Oil rallied, paring a slump that was triggered by the International Energy Agency’s decision to deploy 60 million barrels from emergency stockpiles.

The Fed’s plan to prune its near $9 trillion balance sheet, which was swollen by pandemic-era bond purchases, points to more volatility in global markets. Investors are doubtful the Fed can avoid tipping the world’s biggest economy into a recession as it focuses on slowing activity to bring down price pressures.

“This job of orchestrating a soft landing is going to be difficult,” Tracie McMillion, head of global asset allocation strategy at Wells Fargo Investment Institute, said on Bloomberg Television. “We’ve only seen quantitative tightening once before and it was to a lesser degree than it will be this time, and it ended shortly after it started.”

In China, officials will use monetary policy tools at an “appropriate time” and consider other measures to boost consumption, according to the readout from a meeting of the State Council chaired by Premier Li Keqiang on Wednesday.

Meanwhile, Russia slipped closer to a technical default after foreign banks declined to process about $650 million of dollar payments on its bonds, forcing it to offer rubles instead.

The latest corporate developments included the purchase of a stake in HP Inc. valued at more than $4.2 billion by Warren Buffett’s Berkshire Hathaway Inc. HP’s shares jumped in extended trading.

Key events to watch this week:

• St. Louis Fed’s James Bullard, Atlanta Fed’s Raphael Bostic, Chicago Fed’s Charles Evans speak at separate events Thursday
• Reserve Bank of India rate decision Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures fell 0.4% as of 6 a.m. in London. The S&P 500 fell 1%
• Nasdaq 100 futures shed 0.4%. The Nasdaq 100 fell 2.2%
• Japan’s Topix index fell 1.6%
• Australia’s S&P/ASX 200 index lost 0.6%
• Hong Kong’s Hang Seng index was down 1.3%
• China’s Shanghai Composite index declined 1%
• Euro Stoxx 50 futures fell 0.2%

Currencies

• The Bloomberg Dollar Spot Index was steady
• The euro was at $1.0909
• The Japanese yen was at 123.70 per dollar, up 0.1%
• The offshore yuan was at 6.3664 per dollar, down 0.1%

Bonds

• The yield on 10-year Treasuries fell two basis points to 2.57%
• Australia’s 10-year bond yield was at 2.92%

Commodities

• West Texas Intermediate crude rose 2.1% to $98.24 a barrel
• Gold was at $1 925.57 an ounce