Stocks slip with interest rates unease in focus for traders

BLOOMBERG

Stocks dropped with US Treasuries after hawkish signaling from the Federal Reserve bolstered speculation the US central bank will keep raising interest rates to counter inflation.
UK fast-fashion retailer Boohoo Group Plc was among the sharpest decliners in Europe, plunging 10% after lowering its forecasts as it cuts prices to attract struggling shoppers. The region’s Stoxx 600 index retreated 0.2 to a fresh six-month low. US equity futures steadied.
Hong Kong shares led declines in Asia, with the Hang Seng Index dropping as much as 3.4%, as trading resumed after a long weekend.
The MSCI Asia Pacific Index has now fallen almost 10% from its July peak, closing in on a correction. China remains in a week-long holiday.
Weakness in bond markets followed a slump in Treasuries  when hawkish Fed messaging overtook earlier optimism about the deal to avoid a US government shutdown. Yields on five- to 30-year Treasuries all jumped about 10 basis points, while those on the 10-year note climbed to the highest since 2007.
“While market conditions remain volatile for both equities and fixed income, we believe there are various ways investors can navigate through,” said Mark Haefele, chief investment officer at UBS Global Wealth Management.
“In addition, we are at a rare moment when in our base case we expect cash, bonds, stocks, and alternatives to all deliver reasonable returns. That is both over the next six to 12 months, and over the longer term.”
The dollar strengthened against most of its Group-of-10 peers with Bloomberg’s dollar index edging higher.
The US currency touched a year-to-date high versus the yen after the Bank of Japan said it would conduct an additional buying operation. Japan’s 10-year yields slipped two basis points.
Australia’s dollar slipped to the lowest level since November as bearish sentiment and elevated Treasury yields dragged down the risk currency after the central bank kept policy unchanged for a fourth meeting.

Selloff Momentum
The selloff in global bonds gathered momentum as the US shutdown reprieve prompted traders to raise bets on a November rate interest-hike from the Fed to a roughly one-in-three chance, up from the 25% likelihood priced on Friday.
Fed Vice Chair for Supervision Michael Barr said Monday the biggest question before central bankers was how long to leave rates elevated, while known FOMC hawk Michelle Bowman reiterated her call for multiple hikes.
Cleveland Fed President Loretta Mester, who doesn’t vote on monetary policy this year, said the central bank will likely need to raise rates once more this year.
Investors now have to reprice their expectations, which inherently means more volatility, according to Kyle Rodda, senior market analyst at Capital.com.
“There’s concern about the second-order impacts of stronger growth and higher rates,” he said. “Does inflation re-accelerate? Does the subsequent rise in yields ‘break’ something?”
Elsewhere, gold slipped to the lowest since March. Oil fell for a fourth day, with West Texas Intermediate dropping below $90 a barrel. Waning demand from China is poised to to cap the gains from Opec+ supply cuts, Citigroup Inc analyst Ed Morse said. China Evergrande Group defied the broader gloom, jumping as much as 42% as it restarted trading after a halt.