Stocks fall, dollar weaker vs yen; recession worries mount
World stocks fell on Thursday as global recession worries mounted with U.S. Federal Reserve officials maintaining a hawkish stance, while the dollar declined against the Japanese yen.
Boston Fed President Susan Collins said the Fed will probably need to raise interest rates to “just above” 5% and hold them there for a period.
She was the latest in a string of Fed officials to suggest the U.S. central bank needs to remain hawkish to successfully bring down inflation.
Earlier, European Central Bank president Christine Lagarde pushed up euro zone bond yields slightly by telling the World Economic Forum’s Davos gathering that the bank would stay the course with rate hikes.
Also, Thursday’s data showed that overall U.S. housing starts declined 1.4% to a rate of 1.382 million units last month. Building permits dropped as well, down 1.6% o a rate of 1.330 million units.
Edward Moya, senior market analyst, at OANDA in New York said, “the housing market is in recession and you’re going to get these regional Fed surveys that are weak and are going to show that business activity is struggling.”
Benchmark 10-year U.S. Treasury yields bounced off four-month lows. Benchmark 10-year yields were last at 3.386%, after earlier dropping to 3.321%, the lowest since Sept. 13. The yields have fallen from 3.905% at year-end, and from a 15-year high of 4.338% on Oct. 21.
U.S. bond yields had fallen as investors worried that the U.S. central bank will not be able to raise rates as high and for as long as it has indicated if the economy soon enters a downturn.
The Dow Jones Industrial Average fell 208.05 points, or 0.62%, to 33,088.91, the S&P 500 lost 29.64 points, or 0.75%, to 3,899.22 and the Nasdaq Composite dropped 101.46 points, or 0.93%, to 10,855.55.
Microsoft’s announcement of 10,000 layoffs also was being digested, along with more earnings reports on the most recent quarter. Procter & Gamble raised its full-year sales forecast and said it plans to continue raising prices.
The pan-European STOXX 600 index lost 1.34% and MSCI’s gauge of stocks across the globe shed 0.90%.
Investors were also paying attention to comments from U.S. Treasury Secretary Janet Yellen, who reported using extraordinary cash management measures to keep borrowing under the federal debt limit.
In the currency markets, the dollar was down 0.4% against the Japanese yen. Investors were unwinding some trades from the previous day when the Bank of Japan (BOJ) surprised markets by sticking with ultra-low interest rates.
The BOJ has pursued super-easy policy settings for decades in an attempt to generate inflation and growth, but there are doubts it can keep that up, and traders have been selling Japanese government bonds and buying yen to bet on a shift.
In the energy market, U.S. crude recently rose 0.77% to $80.09 per barrel and Brent was at $85.75, up 0.91% on the day.