Wall Street slides, dollar gains on sterling and yen

NEW YORK, LONDON, Oct 14 (Reuters) – Wall Street stocks went into reverse after initially gaining at Friday’s open, while the dollar was rising in a volatile session as investors digested Russia’ suggestion that it would ease attacks against Ukraine, the British prime minister’s firing of her finance minister and the start of U.S. earnings season.

Sterling fell sharply against the greenback after British Prime Minister Liz Truss fired finance chief Kwasi Kwarteng and scrapped parts of their economic package, which had caused an uproar in financial markets. The dollar also kept rising against Japan’s beleaguered yen, hitting a fresh 32-year peak of 148.86.FRX

Oil settled sharply lower as recession concerns translated to worries about demand and the potential for easing tensions between Russia and Ukraine added pressure.

After escalating attacks on Ukraine in recent days, Russian President Vladimir Putin said his call-up of Russian reservists would end soon with no plans for a further mobilization and no need for massive new strikes on Ukraine.

In U.S. Treasuries, benchmark 10-year yields gained some ground after data showed U.S. retail sales were unexpectedly flat in September as high inflation crimped demand and investors continued to bet on aggressive Federal Reserve rate hikes.

The U.S. third quarter earnings season started on a positive note with shares of JPMorgan Chase & Co (JPM.N), Wells Fargo & Co (WFC.N) and Citigroup Inc (C.N) rising after their reports.

As the session wore on, U.S. equity declines deepened with oil prices pushing energy stocks (.SPNY) down most. Buyers were reluctant to step in after Thursday’s big rally, according to Mona Mahajan, senior investment strategist at Edward Jones.

While traders stepped in to cover bearish bets on Thursday despite higher-than-expected inflation data, Mahajan noted that stocks headed lower on Friday after a University of Michigan survey showed rising inflation expectations.

“We’re back to looking at inflation data very carefully. The Fed does watch inflation expectations. They certainly don’t want inflation expectations to become ingrained in consumer sentiment,” said Mahajan, who also noted signs of fear in the market as the CBOE Volatility index (.VIX) remained above 30.

The Dow Jones Industrial Average (.DJI) fell 411.93 points, or 1.37%, to 29,626.79, the S&P 500 (.SPX) lost 84.51 points, or 2.30%, to 3,585.4 and the Nasdaq Composite (.IXIC) dropped 302.94 points, or 2.84%, to 10,346.21.

The pan-European STOXX 600 index (.STOXX) rose 0.56% and MSCI’s gauge of stocks across the globe (.MIWD00000PUS) shed 1.25%. Emerging market stocks (.MSCIEF) rose 0.80% as Latin American currencies fell due to the dollar strength.

Sterling was last trading at $1.1162, down 1.47% on the day after falling as low as $1.1149.

Friday was to be the last day of the Bank of England’s bond buying program set up to stabilize government bond, or gilt markets, after investors were spooked by unfunded tax cuts announced in a “mini-budget” last month.

Investors appeared to have little confidence in the prime minister’s position or the likelihood that her decisions on Friday could restore Britain’s credibility in financial markets.

The euro was down 0.59% against the dollar at $0.9715 while the Japanese yen had weakened 1.00% versus the greenback at 148.71 per dollar. Japanese Finance Minister Shunichi Suzuki on Thursday reiterated the government’s readiness to take steps against excessive currency volatility.

In U.S. Treasuries, yields edged higher as investors continued to digest Thursday’s red-hot U.S. inflation print and face the likelihood that interest rates will stay higher for longer with the Fed’s policy rate potential moving closer to 5%.

Benchmark 10-year notes were up 5.2 basis points to 4.006%, from 3.954% late on Thursday. The 30-year bond was last up 3.8 basis points to yield 3.9711%, from 3.933%. The 2-year note was last was up 5.8 basis points to yield 4.5066%, from 4.449%.

Oil prices sank more than 3% in a choppy session as fears of a global recession and weak oil demand, especially in China, outweighed support from a large cut to the OPEC+ supply target.

U.S. crude settled down 3.93% at $85.61 per barrel and Brent finished at $91.63, down 3.1% on the day.

Gold prices tumbled 1.5% as the dollar gained while silver fell 3.5% to $18.22 per ounce, and was set for its biggest weekly drop since September 2020.

Spot gold dropped to $1,640.94 an ounce. U.S. gold futures fell 1.76% to $1,640.60 an ounce.

Additional reporting by Gretrude Chavez-Dreyfuss, Herbert Lash in New York, Stella Qiu in Sydney; Editing by Louise Heavens, Will Dunham and Mark Potter

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