- US stocks fell on Wednesday as treasuries recovered from record losses ahead of tighter monetary policy to combat inflation.
- The S&P 500 fell 1.2%, led by losses in financials, while the 10-year Treasury yield fell to 2.30% after reaching highs not seen since mid-2019.
- Bonds are bearing the brunt of central bank calls for tougher action to curb inflation, as investors flock to stocks as an inflation hedge, fueling a rally that has seen the S&P 500 recover half of its January decline in just six sessions.
- Investors have fled bonds as Fed officials have indicated they are willing to raise rates aggressively to tame inflation, and the war in Ukraine has driven commodity prices up 26% this year.
- Oil prices rose on Wednesday as a result of the possibility of new sanctions against Russia, one of the world's largest crude producers. West Texas Intermediate surpassed $110 per barrel, while Brent futures surpassed $120 per barrel. President Joe Biden and his allies are expected to announce new sanctions against Russia at a meeting in Brussels on Thursday.
- Derivatives traders are bracing for a steeper rate cycle after Fed Chair Powell explicitly stated that a half-point hike in May is possible if necessary. His view is that the economy is strong enough to withstand higher borrowing costs, which is shared by both Fed hawks and doves.
- Gold climbed, the dollar was steady and Bitcoin was little changed.
