San Francisco Frontiers - Global stocks sink as optimism dims over early rate cuts

After raising rates to a 23-year high to fight stubborn inflation, the Fed has in recent weeks been indicating that policymakers could be done hiking and are instead talking about when to begin lowering them.

In an interview that aired Sunday, Powell said the central bank wants to see more data before starting to cut interest rates.

The "danger of moving too soon is that the job's not quite done, and that the really good readings we've had for the last six months somehow turn out not to be a true indicator of where inflation's heading," he told the CBS news program "60 Minutes."

"The prudent thing to do," he continued, was to "just give it some time and see that the data continue to confirm that inflation is moving down to two percent in a sustainable way."

- Higher yields -

The Dow Jones Industrial Average fell 0.7 percent on Monday, while the broad-based S&P 500 retreated 0.3 percent and the tech-heavy Nasdaq Composite Index closed down 0.2 percent.

Among individual stocks, Caterpillar shares closed up 1.9 percent after the industrial giant reported a jump in fourth quarter earnings to wrap a strong 2023.

And McDonald's saw its shares fall 3.7 percent after reporting slower comparable sales growth.

Meanwhile, yields on two-year and 10-year US Treasury notes rose, as hopes for early rate cuts faded.

Treasury bond yields are seen as a proxy for US interest rates, rising on expectations of hikes or prolonged pauses, and falling when the markets bring forward their predictions of rate cuts.

Europe's main indices all ended flat, while most of Asia struggled again, with Hong Kong and Shanghai extending a sell-off fueled by growing concerns about the Chinese economy.

The bright spot in Asia was Japan, where the Nikkei finished the day 0.5 percent higher.

- Bond market hopes dim -

"It looks like the Fed is not going to cut as soon as the bond market had hoped for," said Karl Haeling of LBBW.

Although Powell "really didn't say anything new" on Sunday, the stronger-than-expected jobs report on Friday makes it harder for the Fed to start cutting rates, he said.

"It looks like the relentless optimism seen so far on Wall Street is finally beginning to collide with reality," said Chris Beauchamp, chief market analyst at online trading platform IG.

Following last week's hot economic data and the Fed's cool stance for a March rate cut, the markets have sharply cut their forecasts for an early start to rate reductions.

Futures traders now assign a probability of less than 17 percent that the first Fed rate cut will come in March, according to CME Group data.

That is down from almost 65 percent on January 5, underscoring just how rapidly the markets have moved.

- Key figures around 2100 GMT -

New York - Dow: DOWN 0.7 percent at 38,380.12 points (close)

New York - S&P 500: DOWN 0.3 percent at 4,942.81 (close)

New York - Nasdaq Composite: DOWN 0.2 percent at 15,597.68 (close)

London - FTSE 100: FLAT at 7,612.86 (close)

Paris - CAC 40: FLAT at 7,589.96 (close)

Frankfurt - DAX: DOWN 0.1 percent at 16,904.06 (close)

EURO STOXX 50: FLAT at 4,655.27 (close)

Tokyo - Nikkei 225: UP 0.5 percent at 36,354.16 (close)

Hong Kong - Hang Seng Index: DOWN 0.2 percent at 15,510.01 (close)

Shanghai - Composite: DOWN 1.0 percent at 2,702.19 (close)

Euro/dollar: DOWN at $1.0745 from $1.0788 on Friday

Dollar/yen: UP at 148.68 yen from 148.38 yen

Pound/dollar: DOWN at $1.2536 from $1.2631

Euro/pound: UP at 85.68 pence from 85.40 pence

West Texas Intermediate: UP 0.7 percent at $72.78 per barrel

Brent North Sea Crude: UP 0.9 percent at $77.99 per barrel

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R.Baker--SFF