By Rita Nazareth
Stocks pared losses as beaten-down technology companies rallied, despite a surge in Treasury yields.
The S&P 500 still dropped for a third straight session as concern about a Federal Reserve policy mistake overshadowed the latest signals that Russia is open to a diplomatic solution to a crisis that’s raised fears about a Ukraine invasion. Treasury yields rose across the curve, with shorter maturities leading the increase. The rebound kicked in a resumption of curve flattening — with the gap between two- and 10-year yields narrowing.
Fed Bank of St. Louis President James Bullard said the central bank needs to move forward its plans to raise rates to underline its inflation-fighting credibility. “I do think we need to front-load more of our planned removal of accommodation than we would have previously,” he told CNBC Monday. Investors have raised bets on the pace of hikes since the January Fed policy meeting, shifting to six or seven this year versus the three that officials forecast in December.
It’s “hard to see a happy ending” for bonds in a scenario of rising interest rates, Oksana Aronov, a strategist at JPMorgan Asset Management, told Bloomberg Television Monday. “We are in somewhat of a hot mess. We’re in the middle of the Fed’s last policy mistake and concerned about their next policy mistake. Right now, caution is the name of the game.”
Meantime, President Vladimir Putin countered U.S. warnings that Russia may invade Ukraine within days by staging televised meetings with his foreign and defense ministers that emphasized de-escalation of tensions and continued efforts to find a diplomatic resolution to the security crisis. Speaking to Foreign Minister Sergei Lavrov Monday, Putin said “all right” to a proposal that Russia continue talks with the U.S. and its allies on the security guarantees Moscow has demanded.
“If an armed conflict between Russia and Ukraine is somehow avoided, a short-lived relief rally is likely, but there are still too many worries on the horizon for any type of longer lasting upward move higher in stocks,” said George Ball, chairman of Sanders Morris Harris in Houston, with $4.9 billion in assets under management. “It is time for investors to raise cash. Cash is the ultimate king when markets are volatile.”
Here are some key events this week:
- U.S. PPI, Tuesday
- EIA crude oil inventory report, Wednesday
- FOMC minutes, Wednesday
- China CPI, PPI, Wednesday
- G-20 finance ministers, central bank governors meet, Thursday through Feb. 18
- Cleveland Fed President Loretta Mester, St. Louis Fed President James Bullard speak, Thursday
- U.S. Monetary Policy Forum: speakers including Fed officials Charles Evans, Christopher Waller and Lael Brainard, Friday
For more market analysis, read our MLIV blog.
Some of the main moves in markets:
- The S&P 500 fell 0.2% as of 11:31 a.m. New York time
- The Nasdaq 100 rose 0.9%
- The Dow Jones Industrial Average fell 0.6%
- The Stoxx Europe 600 fell 1.9%
- The MSCI World index fell 0.8%
- The Bloomberg Dollar Spot Index rose 0.1%
- The euro fell 0.4% to $1.1306
- The British pound fell 0.3% to $1.3523
- The Japanese yen fell 0.2% to 115.62 per dollar
- The yield on 10-year Treasuries advanced eight basis points to 2.02%
- Germany’s 10-year yield declined two basis points to 0.27%
- Britain’s 10-year yield advanced three basis points to 1.58%
- West Texas Intermediate crude rose 0.8% to $93.82 a barrel
- Gold futures rose 1.2% to $1,864.90 an ounce
More stories like this are available on bloomberg.com.