U.S. Stock Futures, Global Markets Fall After Powell’s Hawkish Remarks

U.S. stock futures and Treasurys fell to start the week, as investors remained unsettled by the Federal Reserve’s resolve to keep fighting inflation even if it causes some economic pain.

Futures tied to the S&P 500 and the Dow Jones Industrial Average fell 0.9% and 0.7%, respectively, in Monday afternoon trading in Hong Kong, indicating that U.S. stocks were likely to decline when markets open. Contracts tied to the Nasdaq 100 were 1.2% lower.  

On Friday, U.S. stocks fell sharply after Fed Chairman

Jerome Powell

said that the U.S. central bank must continue raising interest rates and keep them at an elevated level, until it is confident inflation is under control.

Mr. Powell’s hawkish comments, delivered at a central bankers’ symposium in Jackson Hole, Wyo., disappointed investors who were expecting the Fed to soon be done with its rate-tightening cycle and shift toward cutting rates next year. Such hopes had recently helped fuel a summer U.S. stock rally.

“The market kind of got ahead of itself over the last three, four weeks or so…in terms of pricing in a possible Fed pivot to a more dovish stance,” said Clara Cheong, a global market strategist at J.P. Morgan Asset Management.

Global stocks also tumbled Monday. Japan’s Nikkei 225 fell 2.6%, South Korea’s Kospi dropped 2% and Australia’s S&P/ASX 200 shed 1.9%.

U.S. Treasury yields climbed further as a selloff in government bonds gathered pace. The yield on the two-year Treasury note, which is more sensitive to near-term Fed policy expectations, rose to 3.470% from 3.391% Friday according to Tradeweb.

The 10-year Treasury yield rose about 0.08 percentage point to 3.114%. High U.S. short-term yields relative to long-term yields—also known as an inverted yield curve—have in the past signaled a significant risk of a recession.

The Fed has raised its benchmark federal-funds rate by 0.75 percentage point at each of its last two meetings, most recently in July, to a range between 2.25% and 2.5%.

“We haven’t passed the peak in the interest-rate cycle yet,” said Herald van der Linde, an equity strategist at HSBC. He added that inflation has most likely topped out as many commodity prices have pulled back from their highs this year. The market will get another inflation reading when U.S. consumer-price index data for August is released on Sept. 13.

China’s main stock benchmarks also dropped Monday, but to a lesser extent than other Asian markets. The CSI 300 index of the largest stocks listed in Shanghai and Shenzhen shed 0.6%, while Hong Kong’s Hang Seng Index fell 0.7%.

The Chinese yuan fell to a fresh two-year low against the U.S. dollar. It traded above 6.92 to the greenback in the offshore market on Monday. The Chinese currency has depreciated 8.2% against the dollar in the year to date, according to FactSet.

On Saturday, China’s National Bureau of Statistics said the country’s industrial profit dropped in the first seven months of the year, reversing a year-over-year increase in the first half of the year, as sporadic Covid-19 outbreaks and bad weather weighed on the world’s second-largest economy.

Bitcoin,  the world’s largest cryptocurrency by market value, fell about 1% to $19,825 from 24 hours earlier, according to CoinDesk.

Write to Dave Sebastian at dave.sebastian@wsj.com

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