Updated at 12:07 pm EST
- Dollar index hits fresh 20-year high of 105.403 against a basket of six global currencies.
- Benchmark 10-year note yields hit 3.427% for the first time since 2011, while 2-year yields pass 2007 highs at 2.404%.
- Bitcoin slumps below $22,000, but rebounds from 18-month low of $20,810 seen in overnight trading.
- WTI crude rise $2.16 to $123.09 per barrel in mid-day New York trading.
- Traders betting on a 95.3% chance of a 75 basis point rate hike at Wednesday’s Fed meeting.
U.S. stocks turned lower Tuesday, following the biggest three-day trading decline of the year on Wall Street, as Treasury bond yields extended their recent rise and investors looked to the start of the Federal Reserve’s two-day policy meeting amid accelerating bets on faster and deeper rate hikes.
Stocks lurched lower in the mid-day session, as well, following a trading update from homebuilder Redfin Corp. (RDFN) – Get Redfin Corporation Report, which said it would layoff around 8% of its workforce and cautioned that the group could be facing “years, not months, of fewer home sales.”
The Street’s benchmark gauge of stock market volatility, the VIX, however, was marked firmly above the 32 point mark in early New York trading, suggesting a likely session of wild swings for U.S. markets as the Fed begins deliberations for its Wednesday rate decision.
The CME Group’s FedWatch now indicates a 95.2% chance of a 75 basis point rate hike tomorrow at 2:00 pm Eastern time, up from just 3.9% a week ago. The change in heart followed a series of reports yesterday, including from TheStreet, that suggested the Fed would front-load its rate hikes amid the fastest consumer price inflation in 40 years in order to provide itself more room to pivot should the data begin to change in the autumn.
Bets now indicate the Fed will abandon its previous guidance and boost the FedFunds range by 75 basis points, to between 1.5% and 1.75%, following last week’s inflation shock and the prospect of faster CPI readings to come over the summer months.
Bets on a follow-on rate hike of 75 basis points in July, which would take the FedFunds rate to a range of between 2.25% and 2.5%, were pegged at 79.8%, up from virtually zero at the start of the month.
The shift in rate sentiment triggered a late-hour sell-off on Wall Street Monday, pulling the S&P 500 into bear market territory — defined as a 20% decline from a previous all-time peak — and dragging the Dow to a 52-week low of 30,373.72 points.
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Stocks were also hit by a sell-off in crypto markets, which saw Bitcoin fall to an 18-month low of just under $21,000 each as major exchanges and coin lending platform froze withdrawals in order to limit some of the worst of the volatility.
Overnight in Asia, the downdraft from yesterday’s slump pulled the region-wide MSCI ex-Japan index 0.68% lower heading into the final hours of trading, while European stocks tracked the U.S. market, with the Stoxx 600 falling 1.2% by the close of trading in Frankfurt.
In the U.S., benchmark 10-year Treasury bond yields rose to 3.435%, the highest since 2011, while 2-year notes were pegged at 3.404%, a gap of less than 3 basis points that could portend an inversion of the yield curve, one of the market’s most-reliable indicators of recession.
The dollar index, meanwhile, rose 0.3% to a new 20-year high of 105.405 against a basket of six global currencies following a mixed set of factory gate inflation data for the month of May at 8:30 am Eastern time.
The data showed producer price inflation rising by a faster-than-expected 0.8% on the month, but moderating slightly to 10.8% on the year, amid the ongoing surge in oil and energy costs.
On Wall Street, the Dow Jones Industrial Average was marked 205 points lower in late-morning trading while the S&P 500 fell 14 points. The tech-focused Nasdaq edged 15 points higher.
In terms of individual stocks, Oracle (ORCL) – Get Oracle Corporation Report shares surged 13% after the cloud-focused software group posted stronger-than-expected fourth quarter earnings and said robust demand would help offset strong-dollar headwinds as it kicks off its new fiscal year.
FedEx (FDX) – Get FedEx Corporation Report shares jumped 10% after the world’s biggest parcel delivery group unveiled a board shakeup just weeks after the departure of founder Fred Smith and boosted its quarterly dividend by more than 50%.
Twitter (TWTR) – Get Twitter Inc. Report shares jumped 2%, but still sit well below the level at which Elon Musk has said he’ll purchase the company, ahead of a town hall meeting with the Tesla (TSLA) – Get Tesla Inc. Report CEO later this week.
MicroStrategy (MSTR) – Get MicroStrategy Incorporated Report shares slumped 7.1% as investors closely-tracked bitcoin levels to see if they fall, and hold, below the $21,000 mark, a level that could trigger a margin call on bitcoin backed loans taken by the software group.
Bitcoin prices were last seen 3.5% lower on the session at $21,945.00 each a move that extends its year-to-date decline to around 50%. The coins hit a fresh December 2020 low of $20,816.36 in overnight Asia trading.