U.S. stocks turned sharply lower in late trading after comments by the Bank of England chief on removing market support rattled investor sentiment. Benchmark Treasury yields rose and the dollar gained.

The S&P 500 slid amid renewed selling in tech shares that sent the Nasdaq 100 down more than 1 per cent. Long-end Treasuries bore the brunt of losses and the pound tumbled after BOE Governor Andrew Bailey urged investors to finish winding up positions that they can’t maintain, saying the central bank will halt intervention in the market as planned at the end of this week.

“When Andrew Bailey makes a comment that he will stop QE on Friday, this is going to be an interesting test,” Jimmy Chang, chief investment officer at Rockefeller Global Family Office, said on Bloomberg TV. “It’s a very interesting line in the sand. Will the market push back? How much higher will the yields run? We’ll see.”

Risk sentiment remained fragile after a four-day losing streak wiped US$1.6 trillion off the value of the S&P 500 Index ahead of U.S. inflation readings. Data Thursday may seal the case for another 75-basis-point interest-rate increase at the next Federal Reserve meeting in the absence of a major shortfall. 

Nor have officials given any inclination to pause their rate-hiking cycle in the near future, with Cleveland Fed President Loretta Mester saying Tuesday officials need to keep raising interest rates and cannot get complacent. 

More market comments:

• “The gilt market is one of the more fragile elements of global finance right now,” said Steve Sosnick, chief strategist at Interactive Brokers. “The BOE rescued global markets in the last week of September when they stabilized gilts, so it’s a big risk if they’re going to let them potentially drift lower.”
• “Tuesday’s price action was heavily reliant on the influence of the gilt market; selling off in sympathy with British yields overnight and stabilizing once London left for the day until governor Bailey’s hawkish remarks drove a partial reversal,” Ian Lyngen and Ben Jeffery at BMO Capital Markets wrote in a note.

In addition to inflation data, big U.S. banks kick off the third-quarter earnings season in earnest later this week, with strategists braced for weak profits against a drumbeat of warnings over the rising risk of a global recession. The International Monetary Fund joined the refrain, warning of a worsening outlook as efforts to curb inflation may add to damage from the war in Ukraine and China’s slowdown. 

“We have not seen the impact of tightening,” Michael Kelly, head of the multi-asset team at PineBridge Investments told Bloomberg TV. “That lies ahead and when we see that, it’s another leg down for risk assets.”

Meanwhile, Russian President Vladimir Putin threatened further missile attacks on Ukraine after hitting Kyiv and other cities in the most intense barrage of strikes since the first days of its invasion.

“It’s little wonder investors enter the week in a dreary mood, especially with headlines from Ukraine signaling a further escalation in geopolitical tensions,” Christopher Smart, chief global strategist at Barings, said in a note. 

With world growth under pressure, U.S. oil futures tumbled more than 2 per cent, giving up more of last week’s 17 per cent rally. 

Key events this week:

• Earnings this week include: JPMorgan Chase & Co., Citigroup Inc., Morgan Stanley, BlackRock Inc., Delta Air Lines Inc., UnitedHealth Group Inc., U.S. Bancorp, Wells Fargo & Co.
• FOMC minutes for September meeting, Wednesday
• U.S. PPI, mortgage applications, Wednesday
• OPEC Monthly Oil Market Report, Wednesday
• Fed’s Michelle Bowman and Neel Kashkari speak
• ECB’s Christine Lagarde speaks
• U.S. CPI, initial jobless claims, Thursday
• G-20 finance ministers and central bankers meet, Thursday
• China CPI, PPI, trade, Friday
• U.S. retail sales, business inventories, University of Michigan consumer sentiment, Friday
• BOE emergency bond buying is set to end, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 0.7 per cent as of 4 p.m. New York time
• The Nasdaq 100 fell 1.2 per cent
• The Dow Jones Industrial Average rose 0.1 per cent
• The MSCI World index fell 1 per cent

Currencies

• The Bloomberg Dollar Spot Index rose 0.2 per cent
• The euro was little changed at US$0.9711
• The British pound fell 0.6 per cent to US$1.0986
• The Japanese yen was little changed at 145.82 per dollar

Cryptocurrencies

• Bitcoin fell 1.3 per cent to US$18,996.28
• Ether fell 1.9 per cent to US$1,282.09

Bonds

• The yield on 10-year Treasuries advanced six basis points to 3.94 per cent
• Germany’s 10-year yield declined four basis points to 2.30 per cent
• Britain’s 10-year yield declined three basis points to 4.44 per cent

Commodities

• West Texas Intermediate crude fell 2.9 per cent to US$88.52 a barrel
• Gold futures fell 0.1 per cent to US$1,673.40 an ounce