Pressure on U.S. equities and Treasuries ramped up in the final minutes of Wednesday’s session as traders digested hawkish comments from Federal Reserve officials at their last meeting.

The S&P 500 dropped 0.8 per cent, slumping for the second day in a row, amid concerns the central bank would continue to raise interest rates. The Nasdaq 100 slid 2.2 per cent over a two-day losing streak as tech behemoths including Meta Platforms Inc. and Amazon.com Inc. along with Tesla Inc. dragged on the equities benchmarks.

“The Fed has no choice but to keep it up until they are convinced that inflationary expectations are quashed,” Steve Sosnick, chief strategist at Interactive Brokers, said after the minutes from the central bank’s July meeting were released. “Doing otherwise risks some of the embers reigniting. Even though two governors favored keeping rates steady in July, it is important to keep in mind that a pause is not a pivot.”

Technical factors are also behind the stock market’s recent dips. The S&P 500 closed below its average price over the last 50 days for a second day after a wave of trading in zero-day options helped push the index below the trendline for the first time since March at the tail-end of the prior session.

U.S. Treasury yields turned higher in the afternoon session with the 10-year approaching 4.3 per cent. Earlier this week, yields on the benchmark bond approached levels last reached in October. Yield on the policy sensitive two-year closed in on 5 per cent. 

 “The FOMC minutes reiterated many of the core themes that Powell delivered at the July press conference,” Ben Jeffery, a strategist at BMO Capital Markets wrote. “There was nothing here to derail our assumption that September will be another ‘skip,’ although another hike in November or December is firmly on the table if the data warrants.”

Among currencies, the pound led Group-of-10 peers after UK inflation topped expectations. Meanwhile, China’s economic woes remain in the spotlight, despite a slew of stimulus steps by authorities. The onshore yuan sank against the dollar while the yen fell to a level that triggered Japan’s intervention in September. 

China’s central bank moved to boost fragile sentiment with a stronger-than-expected reference rate for the yuan and the largest injection of short term cash to the financial system since February. So far the steps have failed to restore optimism.

Still, markets are not yet fully reflecting the risks from China’s deteriorating fundamentals, according to Tiffany Wilding, an economist and managing director at Pacific Investment Management Co.

“Given the usual lags, deflationary spillovers have likely only just begun to impact global consumer markets,” Wilding wrote in a note to clients. “Discounting likely to accelerate over the coming quarters.”

Hot wage figures and U.S. retail statistics had rattled markets on Tuesday, spurring bets tight central bank policy will be in place for longer. Minneapolis Fed President Neel Kashkari warned that inflation was “still too high.”

Corporate Highlights:

London-listed BAE Systems Plc is in talks on a possible acquisition of Ball Corp.’s aerospace division, people with knowledge of the matter said.
Intel Corp.’s US$5.4 billion deal with Israel’s Tower Semiconductor Ltd. collapses after failing to win Chinese regulatory approval in time.
Energy Transfer LP will buy Crestwood Equity Partners LP in a US$7.1 billion all-equity deal allowing Energy Transfer to expand its U.S. pipeline network.
Target Corp. climbs after a surprising profit surge in the second quarter overshadows the company’s increasingly cautious outlook on the rest of the year.

Key events this week

• U.S. initial jobless claims, U.S. Conf. Board leading index, Thursday
• Eurozone CPI, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 0.8 per cent as of 4:01 p.m. New York time
• The Nasdaq 100 fell 1.1 per cent
• The Dow Jones Industrial Average fell 0.5 per cent
• The MSCI World index fell 0.9 per cent

Currencies

• The Bloomberg Dollar Spot Index rose 0.2 per cent
• The euro fell 0.3 per cent to US$1.0875
• The British pound rose 0.1 per cent to US$1.2720
• The Japanese yen fell 0.5 per cent to 146.36 per dollar

Cryptocurrencies

• Bitcoin fell 0.3 per cent to US$29,073.57
• Ether fell 0.5 per cent to US$1,819.2

Bonds

• The yield on 10-year Treasuries advanced six basis points to 4.27 per cent
• Germany’s 10-year yield declined two basis points to 2.65 per cent
• Britain’s 10-year yield advanced six basis points to 4.65 per cent

Commodities

• West Texas Intermediate crude fell 2.2 per cent to US$79.17 a barrel
• Gold futures fell 0.7 per cent to US$1,922.40 an ounce