Stocks decline as markets price in more Fed hawkishness
23 November 2021
US equities started yesterday's session in a bullish regime; however, that all changed quickly, and major indices closed notably weaker on the day.
On Monday, the White House & Joe Biden nominated Fed Chairman Powell for a second term as chairman of the Federal Reserve. Lael Brainard will be vice-chair of the Fed, taking the reins from Richard Clarida, the current vice-chairman, whose time on the board of governors is set to expire in January.
That was taken as hawkish by the market participants, sending bond yields sharply higher. The 2-year US yield rose to new cycle highs above 0.6%, while the 10-year advanced to 1.6%. At the same time, investors now expect the Fed to start hiking rates in June, down from July.
The sharp increase in yields (and rate hike expectations) could have been what led to a selloff in the technology sector, as higher yields make high-debt technology stocks less attractive to investors.
The dollar also advanced sharply, sending the EURUSD pair below 1.1250 and the USDJPY pair above 115 for the first time since March 2017.
Rising yields and strengthening USD collapsed the precious metals sector. Gold cratered 2% back toward 1,800 USD, while silver plunged even more and traded below 24 USD at the time of writing.
Later today, the US PMI indices for November are due, expected to continue rising. Lastly, the Richmond Fed Manufacturing Index is seen falling to 5 from 12 previously.