Major Averages Extend 4-day Decline, Treasury Yield Inches Closer to 5%

Barry Adams
03 Nov, 2022
New York City

Stocks on Wall Street turned lower and bond yields surged after the Federal Reserve lifted its key lending rate and reiterated its aggressive stance on inflation. 

The yield on 2-year Treasury bonds surged to a high not seen since 2007 after the Fed Chairman Powell reiterated the central bank's hawkish stance against inflation.

The yield on 2-year Treasury notes rose to 4.71%, 10-year Treasury notes jumped to 4.15%, and 30-year bonds inched higher to 4.19%. 

Tech stocks led the decliners on the worries that the rate tightening cycle will reduce the value of future profits. 

Amazon, Alphabet, Apple, Meta and Microsoft dropped between 2% and 4%. Meta, the parent of Facebook, has plunged 73% in the year so far, the worst performer in the S&P 500 index. 

The S&P 500 index decreased 1.1% to 3,719.89 and the Nasdaq Composite index dropped 1.7% to 10,342.94. 

Crude oil declined $1.85 to $88.14 a barrel and natural gas fell 36 cents to $5.90 a thermal unit. 

After the close, Starbucks reported revenue in the fiscal fourth quarter ending on October 2 increased 3% to a record $8.41 billion from $8.14 billion a year ago. 

In the quarter, net income dropped to $878 million from $1.76 billion and diluted earnings per share declined to 76 cents from $1.49 a year ago. 

Comparable store sales growth slowed to 11% from 22% a year ago and the sales were driven by 1% increase in transaction and 10% growth in ticket size. 

 

U.S. Trade Deficit Grows in September 

The U.S. trade gap enlarged to $73.3 billion in September from a downwardly revised $65.7 billion deficit in August. The trade deficit rose to a 3-month high. 

The goods trade deficit increased by $6.6 billion to $92.7 billion and the service surplus declined $1.0 billion to $19.5 billion. 

Total imports increased 1.5% to $331.3 billion and exports fell 1.1% to $258 billion. 

 

European Markets Fall, UK and Norway Lift Rates, Swiss Inflation Eases

Market indexes in Europe also turned lower and the Bank of England lifted its key lending rate.

The central bank revised higher its lending rate by 75 basis points, the largest rate increase in 33 years, to 3.0%.

The Norwegian central bank lifted its key lending rate by 25 basis points to 2.5%. 

The Monetary and Financial Policy Committee revised its rate higher in an unanimous decision, according to the statement released by the Norges Bank Thursday. 

The central bank also hinted rates are likely to continue to go higher as consumer price inflation in September rose to a 34-year high to 6.9% from 6.5% in August. 

Bond yield rose following the global bond market sell-off after the U.S. rate hike.

The yield rose on 10-year German bunds to 2.24%, French bonds to 2.73%, the UK bonds to 3.48% and Italian bonds to 4.42%.  

The DAX index declined 1% to 13,130.19, the CAC-40 index dropped 0.5% to 6,243.28 and the FTSE 100 index jumped 0.6% to 7,188.63. 

The benchmark Swiss Market Index fell 95.64 points or 0.89% to 10,710.59 despite the larger-than-expected decline in inflation. 

Consumer price inflation in October fell to an annual rate of 3.0% from 3.3% pace in September, the Federal Statistics Office reported Thursday. 

The annual inflation rate was the lowest since May, but still above the 2% target set by the Swiss National Bank. 

AXA Group gained 1% after the French insurance group reported revenue in nine-month period increased to 78.4 billion euros and the company estimated preliminary gross claims and net of reinsurance of 0.4 billion euros of claims arising from Hurricane Ian,   

BMW fell 3% despite the German automaker reiterated its fiscal 2022 annual outlook. 

Solvay SA declined 0.4% after the Belgian chemical maker announced a joint venture with Mexico-based Orbia to manufacture battery materials in the United States.  

A week ago, Solvay lifted its fiscal 2022 organic operating earnings growth estimate to 28% from a year ago from the previous estimate range between 14% and 18% announced in July. 

 

Asian Markets Drop, China Service Sector Contracts 

Markets in Asia reacted to the latest rate hike in the U.S. and Hong Kong Monetary Authority lifted its rate by 75 basis points to keep pace with the Federal Reserve and maintain the fixed-exchange rate.

Markets in Japan were closed to celebrate Culture Day holiday and the Kospi index in Seoul fell 0.3% to 2,329.17.   

The Hang Seng Index plunged 3.1% to 15,339.49 after a private survey showed service sector contracted at a faster-than-anticipated pace in October. 

The Shanghai Index declined 0.2% to 2,997.81 after China imposed more and tighter restrictions in several cities to fight rising cases of coronavirus infections. 

The Sensex index in Mumbai eased 0.1% to 60,836.41 and investors reacted positively to the latest batch of corporate earnings. Service sector also maintained its growth rate in October according to a private survey.  

The ASX 200 fell 128.80 points or 1.84% to 6,857.90 and the broader All Ordinaries index declined 1.77% to 7,050.60 following the rate hike in the U.S.