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

WASHINGTON/LONDON, Nov 23 (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. read more

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

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

The EURO STOXX 50 (.STOXX50E) dropped 1.04% and Germany’s DAX (.GDAXI) fell 0.86%, while Britain’s FTSE 100 (.FTSE) advanced 0.35%.

MSCI’s gauge of Asia Pacific stocks outside Japan (.MIAPJ0000PUS) fell 0.49%, while Hong Kong’s Hang Seng Index (.HSI) 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 (.DXY), 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. read more

COVID CONCERNS

New concerns about the spread of COVID-19 added to the gloomy mood. Riskier assets have been shaken…