Volatility gripped Wall Street as traders kept a close eye on any signs of a potential escalation of the Middle East conflict, while weighing Jerome Powell’s remarks for clues on the policy outlook.
(Bloomberg) — Volatility gripped Wall Street as traders kept a close eye on any signs of a potential escalation of the Middle East conflict, while weighing Jerome Powell’s remarks for clues on the policy outlook.
After multiple twists and turns, the S&P 500 notched its third straight loss. Tesla Inc. sank over 9% on disappointing results. The US is seeing stepped-up drone attacks in Iraq and Syria, while an American destroyer in the Red Sea intercepted cruise missiles and drones fired toward Israel by Houthi rebels in Yemen.
Treasury 10-year yields approached 5%, while two-year rates fell after Powell said the Federal Reserve will proceed carefully with rate hikes, while citing evidence that policy isn’t “too tight.” Swaps trimmed the implied odds of another Fed rate increase to just under 50%, and priced a start to cuts in July, compared with September previously.
“Jay Powell is putting to bed any chance of a Nov. 1 rate hike. As to not let markets get carried away though, he left the door open for more rate hikes,” said Peter Boockvar, author of the Boock Report. “Short rates are falling as they are likely done, but the rise in long rates is proving again that they are losing their grip on that part of the market.”
“The Fed is not yet convinced about where inflation will settle over the next few quarters, which means that the committee will not pre-commit,” said Jeffrey Roach, chief economist for LPL Financial. “Each meeting will be a live meeting.”
Powell also said he recent run-up in bond yields appears to be mostly due to rising term premiums, “and so the type that tightens financial conditions, rather than the type of move the Fed needs to follow through on,” said Krishna Guha, vice chairman of Evercore.
“He agreed that ‘at the margin’ this could substitute for the need for the Fed to raise rates further,” Guha noted. “But his comments lacked any urgency to lean against the rise in yields.”
Fed Bank of Chicago President Austan Goolsbee said he’s hopeful the US is able to avoid a recession despite rapid and steep interest-rate hikes over the past 18 months. He emphasized the need for the Fed to ensure inflation was on track to ease to its 2% goal and for inflation expectations to stay anchored.
Thursday’s economic reports were mixed. Applications for US unemployment benefits dropped to the lowest level since January as the labor market kept powering ahead. Sales of previously owned US homes fell to the lowest level since 2010 as affordability worsened even further.
Elsewhere, a system “incident” halted trading in hundreds of shares on the London Stock Exchange for the final 80 minutes of Thursday’s session.
Corporate Highlights
- Netflix Inc. surged after posting its best quarter for subscriber growth in years.
- American Airlines Group Inc. topped expectations for profit even as its forecast for the rest of the year fell short.
- Union Pacific Corp. reported profit that topped analysts’ estimates, which had been adjusted down in the last month, as the railroad leaned on efficiency to make up for lower carloads and higher labor costs.
- AT&T Inc. raised its free cash flow guidance for the full year after posting mobile subscriber gains and profit that beat analysts’ estimates.
- Lam Research Corp.’s revenue fell for a third straight quarter, a sign demand for chipmaking equipment remains sluggish.
- Blackstone Inc., grappling with higher interest rates and stung by a pullback in dealmaking, reported a 12% decline in quarterly profit available to shareholders.
- Las Vegas Sands Corp. authorized its first share buyback program since 2020, signaling management’s confidence in the business after years of pandemic-related hardship.
Key events this week:
- Japan CPI, Friday
- China loan prime rates, Friday
- Philadelphia Fed President Patrick Harker speaks, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 fell 0.9% as of 4 p.m. New York time
- The Nasdaq 100 fell 0.8%
- The Dow Jones Industrial Average fell 0.7%
- The MSCI World index fell 0.9%
Currencies
- The Bloomberg Dollar Spot Index fell 0.2%
- The euro rose 0.5% to $1.0587
- The British pound was little changed at $1.2148
- The Japanese yen was little changed at 149.81 per dollar
Cryptocurrencies
- Bitcoin rose 1.8% to $28,775.9
- Ether rose 0.4% to $1,569.01
Bonds
- The yield on 10-year Treasuries advanced eight basis points to 4.99%
- Germany’s 10-year yield was little changed at 2.93%
- Britain’s 10-year yield advanced two basis points to 4.67%
Commodities
- West Texas Intermediate crude rose 2.5% to $90.50 a barrel
- Gold futures rose 0.9% to $1,986.80 an ounce
This story was produced with the assistance of Bloomberg Automation.
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