Global Markets Selloff Extends to Second Day On Rate Jitters

Barry Adams
21 Sep, 2023
New York City

Market sentiment swung to caution and worries of rate path dominated  trading on Wall Street. 

In a broad market selloff, popular indexes trended down for the third day this week and trading in crude oil in the last three weeks added to market gloom on the worries of resurgent inflation because of higher oil prices. 

in influencing driven by higher energy and commodities prices, and the higher 

Market averages deepened weekly losses and Treasury yields jumped to multi-year highs after the Federal Reserve signaled rates are likely to stay higher for a longer time. 

Market averages declined after weekly jobless claims indicated strong labor market conditions, suggesting that policymakers may opt for another rate hike at the next meeting.

Initial jobless claims for the week ending September 16 declined 20,000 to 201.,000, the Department of Labor reported  Thursday. 

The initial jobless claims were the lowest since January, and continuing claims decreased 21,000 to an eight-month low of 1.662 million, suggesting unemployed workers are able to find new jobs in relatively shorter duration. 

Treasury yields jumped to multi-year highs as investors adjust to higher interest rate scenario and the U.S. economy is likely to avoid a recession in 2023. 

The yield on 2-year Treasury notes jumped to a level since 2007 and 10-year Treasury notes reached the highest level in 15 years after the release of weekly jobless report. 

 

U.S. Indexes & Yields 

The S&P 500 index declined 1.5% to 4,330.00 and the Nasdaq Composite decreased 1.8% to 13,223.99. 

The yield on 2-year Treasury notes hovered at 5.17%, 10-year Treasury notes inched higher to 4.47% and 30-year Treasury bonds edged up to 4.52%. 

Crude oil decreased $0.05 to $89.59 a barrel and natural gas prices declined 1 cent to $2.77 a thermal unit. 

The dollar index edged higher to 105.58, the level last seen in March and extended gains from the low of 99.85 on July 13. 

 

U.S. Stock Movers 

Klaviyo Inc decreased 1.7% to $32.21 after the company completed its initial public offering and sold 19.2 million shares at $30 each, 

The stock of the marketing software automation company opened at $36.75 and closed at $32.76, about 9% higher than its price.

KB Home declined 4% to $46.10 despite the home builder reporting quarterly results that met investor expectations. 

Revenue in the fiscal third quarter ending in August fell to $1.59 billion from $1.84 billion and the delivered homes declined 7% to 3,375 from a year ago. 

Higher mortgage rates negatively impacted home prices and average selling price in the quarter declined to $466,300 compared to $508,700 a year ago. 

The home building operating income margin declined to 11.3% from 17.7% and housing gross profit margin fell 520 basis points to 21.5%. 

Net income declined to $149.9 million from $255.3 million and diluted earnings per share and diluted earnings per share fell to $1.80 from $2.86 a year ago. 

Starbucks Corp decreased 25 cents to $94.94 after the company said announced to hike its quarterly dividend by 7.5% to 57 cents a share from 53 cents payable on November 24 to shareholders on record November 10. 

The coffee retailer opened a $220 million distribution and manufacturing facility in China, second largest market for the company. 

Darden Restaurants, Inc fell 1.5% to $147.72 after the company said same store sales at its comparable fine dining locations declined 2.8% in the fiscal first quarter ending on August 27. 

Consolidated comparable sales increased 5% driven by rise of 6.0% at Olive Garden stores and 8.1% jump at Long Horn Steak House locations.  

Revenue in the quarter increased to $2.7 billion from $2.4 billion and net income rose to $194.5 million from $193 million and diluted earnings per share rose to $1.59 from $1.56 a year ago. 

The company declared a dividend of $1.31 a share payable on November to shareholders on record on October 10. 

During the quarter, the company repurchased 0.9 million shares for a total of $143 million, and at the end of the quarter $509 million were still available in its $1 billion stock repurchase program. 

 

Higher-for-Longer Rates Worry European Markets 

Market mood across Europe soured after the growing realization that central banks are not done  with their aggressive rate hike campaigns. 

European markets plunged more than 1% and the euro declined to a six-month low and the yields on Euro Area bonds advanced to multi-month highs. 

The U.S. Federal Reserve held its target rate range steady for the second time in a row between 5.25% and 5.50% but held out for one more rate hike in the year. 

But policymakers' views on interest rates in 2024 weighed on the market after the Federal Reserve forecasted two rate cuts in 2024, fewer than previously estimated in June.  

Despite higher rates, committee members do not see a recession in 2023 and 2024.

The policy committee also sharply revised higher its 2023 economic growth outlook to 2.1% from the June estimate of 1.0% and 2024 growth to 1.5% from 1.1%. 

 

Switzerland Rates Steady, Norway and Sweden Hiked Rates

Higher-for-longer rate worries gripped market sentiment after the Swiss National Bank unexpectedly held its interest rate at 1.75% but said more rate hikes may be needed to control inflation. 

The central bank held its inflation outlook at 2.2% in 2023 and 2024 and estimated economic growth around 1% in 2023. 

However, Norgesbank in Norway and Riksbank in Sweden lifted rates by 25 basis points. 

The Monetary Policy and Financial Stability Committee in Norway raised the policy rate from 4.0 to 4.25% and Governor Ida Wolden Bache said another rate hike is likely after the December meeting because inflation is significantly higher than the 2% target. 

Riksbank lifted its policy rate by 25 basis points to 4.0% and said another rate hike may be needed after the policy meeting in November. 

 

Bank of England Held Rates at 5.25%

The Bank of England held its rate steady at 5.25% in a 5-4 vote deciding to review the impact on the economy of the cumulative rates. 

The policy committee forecasted inflation to cool in the coming months largely because of weaker inflation in food and energy prices, despite the resurgent energy prices in the last month. 

The committee also voted to reduce bonds held by the central bank by an additional £100 billion after lowering holdings by £80 billion in the twelve months ending in September. 

The Bank of England held £759 billion of UK government bonds as of Sept 20, 2023. 

 

Europe Indexes & Yields

The DAX index decreased 1.3% to 15,571.86, the CAC-40 index fell 1.6% to 7,213.90 and the FTSE 100 index declined 0.7% to 7,678.62. 

The yield on 10-year German bonds increased to 2.73%, French bonds traded higher to 3.27%, the UK gilts edged up to 4.29% and Italian bonds rose to 4.51%.

The euro edged lower to a three-month low to $1.065, the British pound to $1.236 and the U.S. dollar fetched 90.58 Swiss cents.

Brent crude decreased $0.40 to $93.13 a barrel and the Dutch TTF natural gas advanced €1.82 to €39.11 per MWh.

 

Europe Stock Movers 

Mining and resource companies were in focus after the dollar index rebounded to a six-month high and energy prices turned lower. 

Glencore, Antofagasta and Anglo American declined between 1% and 2%. 

BP Plc and Shell Plc declined about 1% after crude oil prices turned lower after flirting with a one-year high two days ago. 

Essentra Plc gained 2.3% to 151.0 pence after the plastics and fiber products maker announced the acquisition of Italy-based and family owned BMP s.r.l for Є33 million in cash with additional payments based on earnings milestones.  

NEXT plc increased 3.2% to 7,344.0 pence after the company revised higher its earnings outlook for the third time on improving sales. 

Casino Guichard Perrachon SA declined 8.2% to €1.51 after the French grocery retailer announced its five year plan ending in 2028.  

ABN AMRO Bank NV decreased 1.3% to €13.56 and the Dutch lender appointed Ton van Nimwegen as its chief operations officer and member of the executive board for four years.

Valneva SE declined 3.4% to €5.98 after the French vaccine maker announced a loss in the first-half. 

Delivery Hero SE increased 2.8% to €32.80 after the delivery service company confirmed talks to sell Foodpanda's business in select Southeast Asia markets. 

Electrolux AB decreased 1% to €9.67 after the Swedish home appliance company agreed to sell its manufacturing facility in Memphis, Tennessee for $61 million to a U.S. based investment management company. 

 

Asian Markets Extend Losses, Yen and Yuan Under Pressure After Fed Rate Action and Views 

Market indexes across Asia turned lower after the U.S. Federal Reserve decided to hold rates for the second time in a row. 

The rate was widely anticipated by investor, but the Fed's forecast of future rate hikes and levels got market worried. 

Fed policymakers held out for a one possible rate hike before the year's end and fewer rate cuts in 2024. 

Policymakers also estimated that the U.S. economy is likely to avoid a recession in 2023 and 2024. 

In the latest estimate, the Fed forecasted the economy to grow at 2.1% in 2023 from the previous estimate of 1% and continue its growth in 2024 at 1.5% compared to 1.0% estimate released in June. 

Market sentiment was weak in Tokyo after the Fed's hawkish stance and the yen declined to 148.35 against the U.S. dollar. 

Long-term Japanese government bond rates increased to a 10-year high of 0.745%.

Investors in Tokyo are also awaiting the Bank of Japan's rate decision on Friday and most market participants are looking forward to the central bank's views on inflation and future rate path. 

In Thursday's trading, the Nikkei index decreased 1.3% to 32,605.45 and tech stocks led decliners for the fourth day in a row on the worries of higher global rates. 

The Hong Kong Monetary Authority left its base rate unchanged at 5.75%, following the rate pause in the U.S. 

The yuan edged down and hovered near its 16-year low to 7.31 against the U.S. dollar on the worries of higher rates in the U.S.

In China trading, the Shanghai SSE Composite index inched down 0.3% to 3,090.31 and the Hang Seng index decreased 1.3% to 17,651.44 and the KOSPI index fell 1.7% 2,516.74, 

The Hang Seng index extended weekly losses to 2.9% and September losses to 4%, after tech stocks and property developers led decliners.