The US bond sell-off accelerated and stocks fell on Wednesday as investors anticipated the Federal Reserve's monetary policy tightening to fight high inflation
The 10-year Treasury yield exceeded 2.6%, returning to the trading ranges of 2018 and 2019. Meanwhile, the Nasdaq 100 fell by 2.38% and the S&P 500 lost 1.2%.
FX traders expect the sharpest Fed tightening in nearly three decades after Fed Governor Lael Brainard said the US central bank would start rapidly reducing its balance sheets as early as May.
"The Fed is going to have to tighten financial conditions enough to push up the unemployment rate and when the Fed has done that in the past, it has always resulted in a recession," former New York Federal Reserve president William Dudley said.
The Stoxx50 index dropped dramatically during the month, while technology sector and auto industry also declined.
The losses were recorded amid the Fed minutes scheduled on Wednesday that would provide additional clues to the pace of both interest rate hikes and so-called quantitative tightening, the central bank's process of reducing its bond holdings.
Russia's growing isolation due to hostilities in Ukraine could also further disrupt commodity flows and pressure price increases. Fresh sanctions on Moscow are expected. Earlier, Russia's Finance Ministry said a Eurobond payment was sent in rubles after foreign banks declined to process coupon payments, raising the specter of a technical default.
Key events to watch this week:
- Federal Reserve minutes, Wednesday
- EIA crude oil inventory report, Wednesday
- St. Louis Fed's James Bullard, Atlanta Fed's Rafael Bostic, Chicago Fed's Charles Evans speak at separate events, Thursday
- Reserve Bank of India rate decision, Friday
