by Stocks in the US market dropped on Tuesday, and it gave initial gains while traders got ready for a huge interest rate increase expected to come up this week. There is anxiety in the market that the Federal Reserve could tighten monetary policy and it increased the possibility of a higher interest rate.
Stocks in Europe and America Tumble
Europe’s STOXX 600 fell by 0.8% as it encountered losses in the mining and real estate sector. Equities also dropped after they traded higher for a very brief period. The Nasdaq index heavy on tech industry stocks performed lower than its S&P 500 counterpart.
The US Federal Reserve begins its policy meeting on Tuesday, and it is expected that it would increase interest rates by up to 75 basis points by the end of the meeting on Wednesday. Signs of the rate are getting beyond 4% and would halt there. The strategy to hold for long is based on the notion that the Federal Reserve would not want to fall into the 1970 situation where inflation got out of proportion.
The market has largely drawn back on its expectation of a full interest rate increase as only two out of the ninety-six economists surveyed by Bloomberg expect up to 100 basis points increase.
The CEO of Quill Intelligence, Danielle DiMartino Booth, sent out a mail where he expressed his views on the Feds and the coming rates. He said the Federal Reserve might be tightening the monetary policy right into a recession. He said further that the Fed Chairman might be trying to quash the stock market’s dependency on the Federal Reserve easing policies when stocks drop.
China Halts Easy Policy
The Treasury’s ten-year bond yields rose to 3.5% whereas yields on the two-year yields have got to their highest level since November 2007 as they are billed to break beyond 4%, as they reflect the fears of the market.
But in a disturbing turn of stock events, the Treasury bond yields that were amended for inflation increased to their highest point since 2011. They were first pinned in a negative area during the course of soft monetary policies.
The markets have priced in some yield for the two-year Treasury as it draws close to 4%. It is speculated that it might still go higher, but certainly not a lot for now.
The Chinese central bank stopped its easing monetary policy so it can defend the Yuan. Banks in the country have left their interest rates the same.
