Shares retreat as traders see higher rates under Powell; Turkish lira plunges

By Chris Prentice and Tommy Wilkes

WASHINGTON/LONDON (Reuters) -Wall Street stocks fell and the dollar slipped from a 16-month high on Tuesday as investors positioned for interest rate hikes in 2022 after Federal Reserve Chairman Jerome Powell was nominated for a second term, while European shares slumped to a three-week low.

Treasury yields weighed on major U.S. technology stocks, even as bank shares extended the previous day’s gains.

The Turkish lira lost 15% of its value, crashing to another record low as investors panicked after President Tayyip Erdogan defended recent rate cuts and showed little concern for rising inflation.

Volatility in the Turkish currency surged to eight-month highs.

The Dow Jones Industrial Average fell 0.15% to 35,566.97, the S&P 500 lost 0.37% to 4,665.58 and the Nasdaq Composite dropped 1.05% to 15,688.52 by 10:44 A.M. EST (1544 GMT).

The EURO STOXX 50 dropped 1.04% and Germany’s DAX fell 0.86%, while Britain’s FTSE 100 advanced 0.35%.

MSCI’s gauge of Asia Pacific stocks outside Japan fell 0.49%, while Hong Kong’s Hang Seng Index slid over 1.2%.

U.S. President Joe Biden on Monday tapped Powell to continue as Fed chair, and Lael Brainard, the other top candidate for the job, as vice chair. The news initially buoyed Wall Street stocks, before the market pulled back in the afternoon with the S&P 500 and Nasdaq Composite closing well off all-time highs.

The sense that a second term under Powell could add to policymakers’ desire to curb rising inflation also sent investors buying dollars.

The dollar index, which tracks the greenback versus a basket of six currencies, fell 0.03%. The euro was up 0.2%, recovering slightly from a July 2020 low set earlier in the session.

“On the one hand, U.S. President Joe Biden’s decision to confirm Jerome Powell as Fed chair is generally seen as more positive for the greenback as Mr. Powell is considered less dovish than Lael Brainard,” said UniCredit strategists.

“On the other hand, the fact that current COVID-19 developments are primarily affecting the eurozone represents another drag on the common currency.”

U.S. Treasury yields were higher, though two-year note yields dipped after hitting their highest level since early March 2020 on Monday. [US/]

Steen Jakobsen, chief investment officer at Saxo Bank, said “the sell-off in Treasuries amplified when Fed Atlanta President Bostic called for fast tapering that would give the option to hike interest rates earlier if needed, confirming a hawkish tilt within FOMC (Federal Open Market Committee) members.

“Interest rate hike expectations advanced with the market now pricing almost three hikes into 2022,” he added.

Market expectations for a first European Central Bank rate rise were brought forward to December 2022.

COVID CONCERNS

New concerns about the spread of COVID-19 added to the gloomy mood. Riskier assets have been shaken in recent sessions by surging COVID-19 cases in Europe and renewed curbs, dousing investor hopes of a quick recovery in consumption and growth worldwide.

Germany’s outgoing Chancellor Angela Merkel said the latest surge is the worst experienced by the country so far, while Austria went into a new lockdown on Monday.

Euro zone purchasing managers index numbers for November showed business growth unexpectedly accelerating, but that failed to lift sentiment.

In commodities, spot gold slid more than 1%. Bullion prices were under pressure as Powell’s nomination drove expectations that the central bank will stay the course on tapering economic support. [GOL/]

Oil prices rose above $80 a barrel after a move by the United States and other consumer nations to release tens of millions of barrels from reserves to cool the market fell short of some expectations. [O/R]

Brent crude was up 1.88% at $81.2 a barrel. U.S. crude rose 1.46% to $77.87 per barrel.

(Editing by Raissa Kasolowsky, Angus MacSwan and Dan Grebler)

By Chris Prentice and Tommy Wilkes

WASHINGTON/LONDON (Reuters) -Wall Street stocks fell and the dollar slipped from a 16-month high on Tuesday as investors positioned for interest rate hikes in 2022 after Federal Reserve Chairman Jerome Powell was nominated for a second term, while European shares slumped to a three-week low.

Treasury yields weighed on major U.S. technology stocks, even as bank shares extended the previous day’s gains.

The Turkish lira lost 15% of its value, crashing to another record low as investors panicked after President Tayyip Erdogan defended recent rate cuts and showed little concern for rising inflation.

Volatility in the Turkish currency surged to eight-month highs.

The Dow Jones Industrial Average fell 0.15% to 35,566.97, the S&P 500 lost 0.37% to 4,665.58 and the Nasdaq Composite dropped 1.05% to 15,688.52 by 10:44 A.M. EST (1544 GMT).

The EURO STOXX 50 dropped 1.04% and Germany’s DAX fell 0.86%, while Britain’s FTSE 100 advanced 0.35%.

MSCI’s gauge of Asia Pacific stocks outside Japan fell 0.49%, while Hong Kong’s Hang Seng Index slid over 1.2%.

U.S. President Joe Biden on Monday tapped Powell to continue as Fed chair, and Lael Brainard, the other top candidate for the job, as vice chair. The news initially buoyed Wall Street stocks, before the market pulled back in the afternoon with the S&P 500 and Nasdaq Composite closing well off all-time highs.

The sense that a second term under Powell could add to policymakers’ desire to curb rising inflation also sent investors buying dollars.

The dollar index, which tracks the greenback versus a basket of six currencies, fell 0.03%. The euro was up 0.2%, recovering slightly from a July 2020 low set earlier in the session.

“On the one hand, U.S. President Joe Biden’s decision to confirm Jerome Powell as Fed chair is generally seen as more positive for the greenback as Mr. Powell is considered less dovish than Lael Brainard,” said UniCredit strategists.

“On the other hand, the fact that current COVID-19 developments are primarily affecting the eurozone represents another drag on the common currency.”

U.S. Treasury yields were higher, though two-year note yields dipped after hitting their highest level since early March 2020 on Monday. [US/]

Steen Jakobsen, chief investment officer at Saxo Bank, said “the sell-off in Treasuries amplified when Fed Atlanta President Bostic called for fast tapering that would give the option to hike interest rates earlier if needed, confirming a hawkish tilt within FOMC (Federal Open Market Committee) members.

“Interest rate hike expectations advanced with the market now pricing almost three hikes into 2022,” he added.

Market expectations for a first European Central Bank rate rise were brought forward to December 2022.

COVID CONCERNS

New concerns about the spread of COVID-19 added to the gloomy mood. Riskier assets have been shaken in recent sessions by surging COVID-19 cases in Europe and renewed curbs, dousing investor hopes of a quick recovery in consumption and growth worldwide.

Germany’s outgoing Chancellor Angela Merkel said the latest surge is the worst experienced by the country so far, while Austria went into a new lockdown on Monday.

Euro zone purchasing managers index numbers for November showed business growth unexpectedly accelerating, but that failed to lift sentiment.

In commodities, spot gold slid more than 1%. Bullion prices were under pressure as Powell’s nomination drove expectations that the central bank will stay the course on tapering economic support. [GOL/]

Oil prices rose above $80 a barrel after a move by the United States and other consumer nations to release tens of millions of barrels from reserves to cool the market fell short of some expectations. [O/R]

Brent crude was up 1.88% at $81.2 a barrel. U.S. crude rose 1.46% to $77.87 per barrel.

(Editing by Raissa Kasolowsky, Angus MacSwan and Dan Grebler)