Stocks fall, the dollar stabilizes as the market gauges Fed rate policy

NEW YORK/LONDON (Reuters) – Global stocks headed for a third straight day of losses on Tuesday and the dollar held steady as the market weighed how long the Federal Reserve could keep interest rates high and whether politics could lead to a recession.

US stocks followed European stocks lower, with all sectors retreating, except for the defense utilities sector (.SPLRCU)that oscillated between gains and losses.

The US-centric MSCI World Index for all countries (.MIWD00000PUS) It fell 1.06%, on track for a third consecutive session of declines after hitting a three-month high last week.

Treasury yields fell, but more at the long maturity end than at the short end, deepening the inverted yield curve, the market’s signal of a looming recession. The gap between the two- and 10-year bond yields was -82.6 basis points.

Jason Pride, chief investment officer of private wealth at Glenmead in Philadelphia, said the market needs to recognize that the recession is most likely a fact, not just an assumption, and that valuations need to come down.

“During recessions, the markets averaged the price at a discount to fair value, which they haven’t done yet,” Pride said. “There is not a single instance where the market bottomed out before a recession began.”

Data released on Monday showed that US service industry activity rebounded unexpectedly in November, and last week’s strong US payroll report raised doubts about how close the Fed was to easing monetary policy from being restrictive.

Futures show that the market expects the Fed’s final peak interest rate to rise to 4.9951% next May, but by December 2023 it will drop to 4.565% amid speculation that the Fed will cut interest rates to help the economy recover from an expected slowdown in growth.

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Wall Street fell due to banking stocks and Meta Platforms Inc (META.O)After EU regulators decided that Facebook and Instagram units would no longer require users to approve personalized ads based on their digital activity.

Dow Jones Industrial Average (.DJI) The S&P 500 fell 0.79% (.SPX) Decreased by 1.19% and the Nasdaq Composite Index (nineteenth) decreased by 1.57%. In Europe, the STOXX 600 index (.STOXX) lost 0.56%.

The dollar remained mostly unchanged against the euro and the yen after strong gains on Monday, with investors awaiting an expected 50 basis point interest rate hike next week by the Federal Reserve.

The euro rose 0.24% to $1.0516, while the yen strengthened 0.22% at $136.44 per dollar.

Eurozone government bond yields fell after two European Central Bank officials indicated that inflation could be close to peaking in the run-up to a slew of major central bank decisions.

The European Central Bank, the Bank of England and the Federal Reserve meet next week to discuss monetary policy. The Reserve Bank of Australia provided a snapshot of the decisions that will come after raising interest rates to their highest levels in a decade and committing to forecasting further hikes in the future.

All eyes will be on the release of US CPI data next Tuesday, which will provide an insight into the pace of inflation.

The yield on 10-year US bonds fell 4.2 basis points to 3.557%.

Oil prices fell in a volatile market as the dollar remained strong and economic uncertainty offset the upward impact of the Russian oil price ceiling and expectations of increased demand in China.

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On Monday, crude futures recorded their biggest daily drop in two weeks.

US crude fell 2.24 percent to $75.21 a barrel, and Brent crude fell at $80.70, down 2.39 percent for the day.

Spot gold rose 0.3 percent to $1,774.09 an ounce.

Reuters graphics

Additional reporting by Herbert Lash, Anshuman Daga in Singapore and Alun John in London; Editing by Simon Cameron-Moore, Angus McSwan and Jonathan Otis

Our standards: Thomson Reuters Trust Principles.

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