GLOBAL MARKETS – Dollar gains, stocks slide as Fed officials talk tough on rates

(Adds US market, deadline, fresh prices)


European stocks fall after early rise


The dollar regains strength after a hawkish speech from the Fed


Oil and metals crash in commodity markets

By Herbert Lash and Marc Jones

NEW YORK/LONDON, Nov 17 (Reuters) – The dollar rose and stock markets fell on Thursday after more hawkish remarks from Federal Reserve officials reminded investors that less aggressive monetary policy is unlikely, with US employment data still showing tight labor market.

The nagging recession and concerns over higher interest rates rattled European markets, while the pound fell as Britain hoped to put its recent disastrous fiscal experience behind it with a more austere budget.

Early optimism in Europe about Siemens earnings and the fact that the European Central Bank might slow its rate hikes quickly led to more selling, which was followed on Wall Street by further statements from Fed officials that rates are not high enough.

The U.S. central bank needs to keep raising rates by at least another percentage point, as hikes so far “have had only limited effects on observed inflation,” said James Bullard, chairman of the St. Louis Fed.

Using even “dovish” assumptions, a baseline monetary policy rule would require rates to rise to at least about 5%, while more stringent assumptions would recommend rates above 7%, Bullard said at an event. economy in Louisville, Kentucky.

Market expectations for the Fed’s maximum terminal rate rose slightly to nearly 5% in May and June after tough talks from Bullard and other Fed officials this week.

“The narrative quickly shifted to a possibly more subdued path for inflation next year and what would happen if there was a significant slowdown in growth and a recession,” said Subadra Rajappa, head of of the US rates strategy at Societe Generale in New York.

The pan-European STOXX 600 index lost 0.45% and the MSCI gauge of stocks across the world lost 1.24%.

On Wall Street, the Dow Jones Industrial Average fell 0.78%, the S&P 500 lost 1.18% and the Nasdaq Composite fell 1.15%.

Unemployment claims data showed U.S. jobless claims fell last week, indicating the labor market is still tight despite the Fed’s aggressive rate hikes to cool demand.

Expectations of higher rates strengthened the dollar and weakened other currencies. The dollar plunged 3.7% last week when U.S. consumer inflation data for October came in below expectations and raised hopes the Fed could halt rate hikes.

The euro fell 0.61% to $1.0329 and the yen weakened 0.74% against the dollar to 140.57.

Sterling fell 1.08% to $1.1779 the day after Britain’s new government presented a new budget plan of 55 billion pounds ($64.93 billion) in tax increases and spending cuts.

DoubleLine portfolio manager Bill Campbell said the pound’s rebound over the past month meant the top budget headlines were likely already priced in and the UK experience may well be mirrored elsewhere, particularly with the impending recessions and the ongoing energy crisis.

“Fed comments, like resilient spending numbers, have done little to help those looking for an imminent pivot,” with caution permeating markets accordingly, National Australia Bank economist Ted Nugent wrote in a customer note.

Concerns about the economic outlook have deeply inverted the Treasury yield curve, suggesting investors are bracing for a recession.

The 2-year/10-year yield spread closed below -60 basis points for the first time since 1982 “which is concerning considering its historical accuracy as a leading indicator of recessions,” Jim said. Deutsche Bank Reid.

The spread between two- and ten-year Treasury yields, seen as a harbinger of recession, was -69.8 basis points.

The yield on the benchmark 10-year bond rose 9.6 basis points to 3.790%.

U.S. crude recently fell 3.19% to $82.86 a barrel and Brent to $90.92, down 2.09% on the day.

Nickel, copper and tin all fell sharply, with industrial metals hit hard. Spot gold fell 0.9% to $1,758.45 an ounce.

(Reporting by Herbert Lash, additional reporting by Marc Jones in London, Kevin Buckland in Tokyo; editing by Bernadette Baum and Kirsten Donovan)

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