Stocks struggled for direction amid bets that even if the Federal Reserve pauses its rate hikes in September, policy will remain tight to prevent a flare-up in inflation. Treasuries fell.
(Bloomberg) — Stocks struggled for direction amid bets that even if the Federal Reserve pauses its rate hikes in September, policy will remain tight to prevent a flare-up in inflation. Treasuries fell.
A renewed jump in longer-term US yields weighed on sentiment after a weak 30-year bond auction. Wall Street’s risk-on bid also faded as Fed Bank of San Francisco President Mary Daly told Yahoo! Finance the central bank still has “more work to do.” That’s even after data showed the core consumer price index had the smallest back-to-back increase in more than two years.
“The case is building for the Fed to keep policy rates unchanged in September,” said Seema Shah, chief global strategist at Principal Asset Management. “While inflation is moving in the right direction, the still-elevated level suggests that the Fed is some distance from cutting rates.”
The S&P 500 closed little changed after a gain that topped 1% earlier Thursday. Nvidia Corp., which has more than tripled this year, extended a three-day slide. General Motors Co. and Ford Motor Co. dropped on growing concern that demands from union leaders could send the automakers’ labor costs soaring. Walt Disney Co. rallied after saying capital spending and outlays for movies and TV shows are coming in lower than projected.
Treasury 30-year yields climbed after a $23 billion auction was awarded the highest rate since 2011. Two-year yields, which are more sensitive to imminent Fed moves, reversed an earlier slide. Benchmark 10-year yields rose about 10 basis points to 4.1%. The dollar gained. Oil’s rally, driven by increasing signs of a tightening market, paused as technical barriers stalled further advances.
Read: US REACT: Second Subdued Core CPI Print = Fed Pause in September
More on CPI:
- George Mateyo, chief investment officer at Key Private Bank:
“Today’s inflation report was reminiscent of the good old days. The Fed, therefore, might feel as if they’ve ‘stuck the landing’ and can pause as planned and not raise interest rates in September. That said, in our view, the economy continues to be carrying decent momentum, and as was reported last week, wage growth is still robust. So, while a pause is probable, a near-term pivot is not.”
- Greg Wilensky, head of US fixed income at Janus Henderson Investors:
“Overall, we expect to see the Fed keep policy rates unchanged in September, though there is still time and data to come ahead of the next meeting. If economic conditions continue as expected, we believe we have seen the last hike for this cycle. This makes us more constructive on adding interest-rate risk, particularly at the front of curve.”
- Michael Contopoulos, head of fixed income at Richard Bernstein Advisors:
“We still have another CPI print before the next Fed meeting, but I think today’s data in isolation would bolster the case for a skip. The other thing worth highlighting from today’s report is the jump in unemployment claims after a period of strength. I don’t think it’s a coincidence that inflation continues to moderate as the labor market continues to weaken (albeit at a snails pace).”
- Callie Cox, US investment analyst at eToro:
“We are far from the inflationary conditions of last year. Now, the job clearly isn’t done yet. Stubbornly high inflation – even at 3 or 4% – can warp how we think about money. And the chance of a recession is still significant. The Fed has hiked rates aggressively, and we still don’t know what cracks are forming underneath the surface. In this environment, it’s important to stay defensive while respecting the bull market’s momentum.”
- Greg McBride, chief financial analyst at Bankrate:
“While this report supports the notion of the Federal Reserve holding interest rates steady at their September meeting, we’ll need to see more evidence of easing inflation pressures before the Fed is comfortable moving to the sidelines and staying there.”
Key events this week:
- UK industrial production, GDP, Friday
- US University of Michigan consumer sentiment, PPI, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 was little changed as of 4 p.m. New York time
- The Nasdaq 100 rose 0.2%
- The Dow Jones Industrial Average rose 0.1%
- The MSCI World index rose 0.1%
Currencies
- The Bloomberg Dollar Spot Index rose 0.1%
- The euro was little changed at $1.0980
- The British pound fell 0.3% to $1.2676
- The Japanese yen fell 0.7% to 144.80 per dollar
Cryptocurrencies
- Bitcoin fell 0.3% to $29,405.98
- Ether fell 0.2% to $1,847.65
Bonds
- The yield on 10-year Treasuries advanced 10 basis points to 4.10%
- Germany’s 10-year yield advanced three basis points to 2.53%
- Britain’s 10-year yield was little changed at 4.36%
Commodities
- West Texas Intermediate crude fell 1.8% to $82.84 a barrel
- Gold futures fell 0.2% to $1,946.10 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Richard Henderson, Alex Nicholson, Cecile Gutscher, Emily Graffeo, Elena Popina, Vildana Hajric and Isabelle Lee.
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