(Bloomberg) — The stock-market selloff deepened on Tuesday as bond yields surged and traders watched a Senate hearing with Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen.
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Powell cited the importance of raising the debt limit to avert defaults on U.S. obligations, while Yellen warned that “catastrophic” results would follow a failure to address the situation — including a “financial crisis” and recession. Senator Elizabeth Warren, pressing Powell on his record on financial regulation, said that he’s a “dangerous man to head up the Fed” and that’s why she will oppose his renomination.
Yellen said her department will effectively run out of cash around Oct. 18 unless Congress suspends or increases the debt limit, putting pressure on lawmakers to avert a default. Her latest timeline is somewhat sooner than many on Wall Street anticipated, and her warning intensified signs of financial-market concern amid an impasse between Republicans and Democrats on addressing the debt ceiling.
“The U.S. Congress has a big ‘to do’ list shaping up,” wrote Win Thin, global head of currency strategy at Brown Brothers Harriman. “Markets seem pretty sanguine that we can avoid another shutdown, but that doesn’t mean it’s going to be smooth sailing.”
In a tumultuous session of above-average trading volume, the S&P 500 headed toward its biggest decline since May. Technology shares — which have led the surge in equities from the depths of the pandemic — underperformed companies that will likely benefit the most from an economic revival. The yield on Treasury 30-year bonds climbed more than 10 basis points earlier Tuesday.
The central bank should let its balance sheet shrink next year as soon as it winds down a bond-purchase program, St. Louis Fed President James Bullard told Reuters. High inflation could require more aggressive steps — including two rate increases in 2022, he added.
U.S. consumer confidence dropped in September for a third straight month, suggesting concerns over the delta variant and higher prices continue to dampen sentiment. Home prices surged 19.7% in July — once again posting the biggest jump in more than 30 years.
Elsewhere, Brent erased gains in tandem with weaker broader markets after topping $80 a barrel. The benchmark earlier rose above that level for the first time since October 2018 on signs that demand is running ahead of supply and depleting inventories. Natural gas futures soared in the U.S. amid growing fears of a global supply crunch.
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House Speaker Nancy Pelosi is pushing Democrats toward a vote this week on a bipartisan infrastructure bill as President Joe Biden worked to broker a deal with Senate moderates on a bigger package of taxes and spending.
Here are some events to watch this week:
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Japan’s ruling party votes to elect leader, Wednesday
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Central bank chiefs Andrew Bailey (BOE), Haruhiko Kuroda (BOJ), Christine Lagarde (ECB) and Jerome Powell (Fed) participate in an ECB Forum panel, Wednesday
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House Financial Services Committee hearing on the Fed, Treasury’s pandemic response, Thursday
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China Caixin manufacturing PMI, non-manufacturing PMI, Thursday
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Univ. of Michigan sentiment, ISM manufacturing, U.S. construction spending, spending/personal income, Friday
For more market analysis, read our MLIV blog.
Some of the main moves in markets:
Stocks
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The S&P 500 fell 1.9% as of 12:39 p.m. New York time
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The Nasdaq 100 fell 2.6%
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The Dow Jones Industrial Average fell 1.5%
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The MSCI World index fell 1.8%
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The Russell 2000 Index fell 1.7%
Currencies
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The Bloomberg Dollar Spot Index rose 0.5%
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The euro fell 0.1% to $1.1681
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The British pound fell 1.1% to $1.3542
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The Japanese yen fell 0.3% to 111.38 per dollar
Bonds
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The yield on 10-year Treasuries advanced three basis points to 1.52%
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Germany’s 10-year yield advanced two basis points to -0.20%
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Britain’s 10-year yield advanced four basis points to 0.99%
Commodities
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West Texas Intermediate crude fell 0.8% to $74.85 a barrel
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Gold futures fell 0.8% to $1,738.20 an ounce
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