Stocks, Bonds Fall After Hawkish Brainard Remarks: Markets Wrap

(Bloomberg) -- U.S. equities and bonds fell as traders weighed hawkish Federal Reserve commentary and a new round of potential sanctions on Russia, ratcheting up global tensions over Moscow's invasion of Ukraine.

The S&P 500 declined, led by losses in technology and consumer discretionary, while Treasuries also retreated amid deepening concern about inflation and the policy response. Federal Reserve Governor Lael Brainard said the U.S. central bank will continue to tighten policy methodically and shrink its balance sheet at a rapid pace as soon as May. 

The 10-year Treasury yield rose for a third day to a three-year high, with the spotlight remaining on inverted yield curves that may signal an economic downturn, should the Fed tighten aggressively to quell price increases. 

“There's lots of uncertainty about what's going to happen next in a slew of areas pertinent to investing, including whether the U.S. economy is heading for a recession, how high inflation will go and what the Fed will do about it,” Ed Yardeni, president of Yardeni Research, said in a note. “The many unknowns have made for a volatile stock market so far this year.”

Market moves continue to be shaped by the ramifications of tightening monetary policy and the war in Ukraine as raw-material costs stoke inflation. 

The U.S., European Union and Group of Seven are expected to announce additional sanction on Russia, including a ban on all new investments in the country. Additionally, the EU is planning to propose a mandatory phaseout on coal imports from Russia in a direct response to reports Moscow forces have committed apparent war crimes in Ukraine.

European coal futures rose to a three-week high. Crude oil fell after the EU was said to be steering clear of sanctioning Russia's oil and gas for now. Meanwhile, the Stoxx Europe 600 index inched higher and bond yields across Europe climbed as a report showed input costs for French services firms accelerated to a record. 

Up next, traders will be looking for minutes Wednesday from the Federal Reserve's latest meeting to guide expectations for how rapidly the bank plans to increase rates and reduce its bond holdings. 

“This Fed has been clear as a bell about what we should expect from them,” Liz Young, head of investment strategy at SoFi, said on Bloomberg TV. “They did exactly what we expected that first time in March and now they're being even more clear about 50 in May. So as we move toward May, stocks can get their expectation in line about what we might see.”

• Where is the dollar headed next? How will the composition of FX reserves change? Those are the themes of this week's MLIV survey. Please click here to participate.

Key events to watch this week:

• Federal Reserve minutes Wednesday
• China Caixin composite and services PMI Wednesday
• EIA crude oil inventory report Wednesday
• Philadelphia Fed President Patrick Harker speaks Wednesday
• St. Louis Fed's James Bullard, Atlanta Fed's Raphael Bostic, Chicago Fed's Charles Evans speak at separate events Thursday
• Reserve Bank of India rate decision Friday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 1.3% as of 4 p.m. New York time
• The Nasdaq 100 fell 2.2%
• The Dow Jones Industrial Average fell 0.8%
• The MSCI World index fell 1.1%

Currencies

• The Bloomberg Dollar Spot Index rose 0.4%
• The euro fell 0.6% to $1.0903
• The British pound fell 0.3% to $1.3076
• The Japanese yen fell 0.7% to 123.62 per dollar

Bonds

• The yield on 10-year Treasuries advanced 16 basis points to 2.56%
• Germany's 10-year yield advanced 11 basis points to 0.61%
• Britain's 10-year yield advanced 11 basis points to 1.65%

Commodities

• West Texas Intermediate crude fell 2.9% to $100.30 a barrel
• Gold futures fell 0.5% to $1,924 an ounce

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