Shares slip as investors absorb “higher-for-longer“ rate outlook

A global index of stocks fell on Monday as bond yields rose while investors continued to digest last week’s central bank indications that interest rates would stay higher for longer.

The dollar hit an 11-month high against the Japanese yen the highest in almost 10 months against a basket of currencies after the U.S. Federal Reserve last week signalled it could raise interest rates further and was likely to hold them higher for longer than investors had expected.

U.S. economic risks that Powell noted in a press conference last week included the autoworkers’ strike, a possible federal government shutdown, resumption of student loan repayments, higher energy prices and higher long-term borrowing costs.

On Monday, Chicago Fed president Austan Goolsbee said inflation entrenched above the central bank’s 2% target remains a bigger risk than tight Fed policy slowing the economy more than needed.

The MSCI All-World index (.MIWD00000PUS) was last down 0.51% on the day and was heading for its biggest monthly decline this year of 3.7%.

“Yields continue to push higher, putting downward pressure on stocks but it feels like markets are showing more resilience. Technology and growth parts of the market are holding up better today,” said Mona Mahajan, senior investment strategist at Edward Jones.

Until the next inflation reading, due on Friday, and the third-quarter earnings reporting season, which starts in October, investors “may stay in a wait and see mode,” Mahajan said.

The Dow Jones Industrial Average (.DJI) fell 157.67 points, or 0.46%, to 33,806.17, the S&P 500 (.SPX) lost 8.62 points, or 0.20%, to 4,311.44 and the Nasdaq Composite (.IXIC) dropped 20.25 points, or 0.15%, to 13,191.56.

The pan-European STOXX 600 index (.STOXX) lost 0.97%.

In U.S. Treasuries the benchmark 10-year Treasury yield was building on three straight weeks of gains on expectations U.S. rates would stay higher for longer than previously anticipated.

Benchmark 10-year notes were up 8.1 basis points to 4.521%, from 4.44% late on Friday. The 30-year bond was last up 11.8 basis points to yield 4.6397%, from 4.522%. The 2-year note was last was down 0.9 basis points to yield 5.1141%, from 5.123%.

In currencies, the dollar index rose 0.455%, with the euro down 0.69% to $1.0578.Sterling was last trading at $1.22, down 0.31% on the day.

The Japanese yen weakened 0.36% versus the greenback at 148.90 per dollar close to the 150-per-dollar is the level many traders believe could represent a line in the sand for the Bank of Japan to intervene. The BOJ last week maintained its ultra-loose monetary policy.

Governor Kazuo Ueda, in a speech on Monday, reiterated the central bank’s resolve regarding interest rates and said there was “very high uncertainty” over whether companies would continue raising prices and wages.

In energy markets, oil prices edged lower in choppy trade on Monday as Russia relaxed its fuel ban, after earlier gains on a tighter supply outlook, while investors eyed elevated interest rates that could curb demand.

U.S. crude recently fell 0.93% to $89.19 per barrel and Brent was at $92.72, down 0.59% on the day.

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