NEW YORK, June 14 (Reuters) – Global stocks and bonds stemmed heavy losses on Tuesday in choppy trade as investors tried to recover from the previous day’s rout, while bracing for an interest rate hike. American interest this week could be the biggest in 28 years.

Surprisingly strong US inflation data released last Friday fueled bets that the Federal Reserve would have to tighten monetary policy more aggressively to rein in soaring prices. Fears that the tightening could trigger a recession weighed on global stocks and government bonds on Monday.

Investors are now betting with near certainty that the Fed could announce a 75 basis point rate hike – the biggest since November 1994 – at the end of its policy meeting on Wednesday. Read more

Join now for FREE unlimited access to Reuters.com

Register

“This is the meeting everyone has on their radar…, and the market will be hanging on every word Fed Chairman Jerome Powell has to say,” said Chris Weston, head of research at Pepperstone. Group Ltd, a currency broker in Australia. “The market wants answers on its commitment to crush inflation.”

By late morning in New York, the Dow Jones Industrial Average (.DJI) had given up its first gains and was down 0.39%. The S&P 500 (.SPX) fell 0.23% and the Nasdaq Composite (.IXIC) was flat.

The MSCI Global Stocks Gauge (.MIWD00000PUS) fell 0.52% to levels last seen in November 2020, while a pan-European stock index fell 1.05% to March lows 2020 (.STOXX).

Underlining expectations of a hike in U.S. rates, two-year Treasury yields hit a high of 3.430%, the highest since November 2007. Ten-year Treasury yields hovered at 3.3848%, ahead of from an 11-year high of 3.440% reached on Monday.

Markets are now seeing the Fed’s rate hike cycle peak around 4%, down from the 3% seen last month. Read more

Eurozone government bond yields also hit new multi-year highs as core-periphery spreads widened amid concerns about accelerating central bank monetary tightening.

Investors’ repricing of higher rates has driven down assets that benefited from rock bottom interest rates – stocks, crypto, junk bonds and emerging markets.

Monday’s selloff pushed the S&P 500 index into a so-called bear market as it shed more than 20% from its most recent closing high.

Fed terminal rate

“Quite simply, when we see monetary tightening in the order of what we see globally, something is going to snap,” said Timothy Graf, head of EMEA macro strategy at State Street.

“Equity markets reflect the reality of the first-order effect of tightening financial conditions,” Graf said, predicting that with US equity valuations still above COVID-era lows, there was more pain to come.

“I think there are other shoes to drop,” he added.

Asian stocks also fell 1%, catching up with Monday’s dismal Wall Street session.

Crypto markets, where bitcoin and ether hovered near 18-month lows, were also rattled by interest rate expectations and crypto lender Celsius Network’s decision to freeze withdrawals. Read more

Bitcoin, which fell as low as $20,816, recovered to $22,377.9 on Tuesday.

Brent crude futures rose above $123 a barrel, supported by tight oil supply.

State Street’s Graf did not view the recession as inevitable, but acknowledged that “monetary tightening and the compression of real incomes by commodity prices means the likelihood has increased.”

Markets also have to contend with the dollar surging to new 20-year highs against a basket of currencies .

It was up 0.26% on Tuesday, putting pressure on the yen to languish near 24-year lows against the greenback.

With the Bank of Japan expanding its bond buying on Tuesday and unlikely to abandon its ultra-low rate policy at its meeting on Friday, a respite for the yen seems unlikely.

“Given that Wednesday could see the Fed hit 75 basis points and signal more, while the BOJ on Friday will only signal more bond buying, the yen is not going to stay at these levels for long. much worse,” he added. Rabobank strategist Michael Every said.

king dollar
Join now for FREE unlimited access to Reuters.com

Register

Reporting by Sujata Rao; additional reporting by Scott Murdoch and Alun John in Hong Kong; Editing by David Evans, Alex Richardson and Mark Heinrich

Our standards: The Thomson Reuters Trust Principles.