Stocks finished lower Friday, while the dollar surged and oil prices slumped, as investors worried that surging inflation in Europe, weakening growth in China and higher interest rates from the Fed would upend the recent rally in global markets.
A dovish take on minutes from the Fed's July policy meeting, which tipped stocks to a firmer close on Thursday, was challenged by a series of Fed policymakers amid improving jobs market data and the overall outperformance of the U.S. economy against its global peers.
St. Louis Fed President James Bullard told the Wall Street Journal that he didn't see the need to "drag out interest rate increases into next year" as he made the case for quicker, and larger, rate hikes that would take the Fed Funds rate to a range of 3.75% to 4% by the end of December.
That was was largely echoed by San Francisco Fed President Mary Daly, who said a 75 basis point rate hike next month could be a "reasonable" reaction to inflation and employment data.
"We need to get the rate up to neutral at least -- which is around 3% -- but likely to restrictive territory," which she described as " a little bit above 3% this year and a little bit more above 3% next year" during during an interview with CNN International.
The CME Group's FedWatch is now indicating a 45.5% chance of a 75 basis point rate hike on September 21, up from 41% during yesterday's trading.
The comments, placed against worrying inflation levels in Europe, where prices rose at two-decade high of 8.9% last month, reminded investors that the post-pandemic economic faces myriad challenges.
One of those challenges remains China, where officials have now warned of an impending drought, adding to a list of woes in the world's second-largest economy that has sparked talk of a rate cut from the Peoples' Bank of China.
China's yuan was fixed near the lowest levels in two years against the U.S. dollar, while the dollar index rose 0.65% to trade at 108.162 against a basket of six global peer currencies.
Benchmark 10-year note yields, which move in the opposite direction of prices, rose 8 basis points from yesterday to 2.978% while 2-year notes were pegged at 3.244%.
European stocks slumped lower following a troubling reading for factory gate inflation in Germany, the region's largest economy, powered in part by a 105% year-on-year increase in energy input prices. Europe's Stoxx 600 benchmark fell 0.24% in mid-day Frankfurt trading, following on from a 0.48% decline for the region-wide MSCI ex-Japan index in Asia.
On Wall Street, the S&P 500 ended 1.29% lower, while the Dow Jones Industrial Average fell 292 points, or 0.85%, to 33,706. The tech-focused Nasdaq lost 2%.
Bed, Bath & Beyond (BBBY) shares plummeted more than 40% after Securities and Exchange Commission filings late Thursday indicated that Ryan Cohen, the retailer's second-largest shareholder, had completely exited his near 12% stake in the group.
Deere & Co (DE) shares finished slightly higher after the farm equipment maker posted weaker-than-expected third quarter earnings and trimmed its full-year profit forecast amid ongoing supply chain pressures.
Applied Materials (AMAT) shares fell 3.36% after the semiconductor equipment maker posted better-than-expected third quarter earnings and a solid, but cautious, near-term outlook.
Home Depot (HD) shares lost 1.20% after the home improvement retailer unveiled a new $15 billion share buyback program, held its dividend in place and named new CEO Ted Decker as group chairman following stronger-than-expected second quarter profits earlier this week.
