The dollar hit the highest since March as Treasury yields rose and stocks fell, with traders betting interest rates will remain elevated even if the Federal Reserve halts its tightening cycle this month.
(Bloomberg) — The dollar hit the highest since March as Treasury yields rose and stocks fell, with traders betting interest rates will remain elevated even if the Federal Reserve halts its tightening cycle this month.
The Bloomberg Dollar Spot Index rose 0.5%. Options traders are also positioning for further strength. One-year risk reversals, a barometer of market sentiment over the long term, are near their most bullish levels since April. The yield on 10-year Treasuries advanced five basis points to 4.2%. The S&P 500 hovered near 4,500. Brent oil rallied to $90 a barrel for the first time since November as key OPEC+ producers extended supply cuts that have tightened the crude market.
Fed Governor Christopher Waller said policymakers can afford to “proceed carefully” with interest-rate increases given recent data showing inflation continuing to ease. “There is nothing that is saying we need to do anything imminent anytime soon,” Waller said in an interview on CNBC Tuesday, signaling he supports holding rates steady at the central bank’s next meeting. “We can just sit there and wait for the data.”
“It might be more accurate to say that the Fed is sailing in shallow waters in a thick fog,” said David Kelly, chief global strategist at J.P. Morgan Asset Management. “It should be moving very slowly and be ready to halt or reverse its monetary tightening.”
Read: Bubble-Hunter Rob Arnott Sees a ‘Big Market Delusion’ in Nvidia
Goldman Sachs Group Inc. now sees a 15% chance the US will slide into recession, down from 20% previously as cooling inflation and a still-resilient labor market suggest the Federal Reserve may not need to raise interest rates any further.
US equity investors are in for disappointment as economic growth is set to be weaker than expected this year, according to Morgan Stanley’s staunch bear, Michael Wilson.
“At current prices, markets are now expecting a meaningful reacceleration in growth that we think is unlikely this year, especially for the consumer,” Wilson wrote. “Potentially softer September and October data is not priced into many stocks and expectations.”
September Trends
The worst month of the year for US equities is upon us, but a bevy of positive market signals suggest it may not be so bad this time around. While seasonal trends place September in last place for stock market performance, returns have been most robust in times the S&P 500 gained between 10% and 20% year-to-date through August, according to Bank of America Corp. chief technical strategist Stephen Suttmeier.
Such an advance through August has preceded a market move higher in the last four months of the year 91% of the time, with an average jump of 7.6%. If that trend holds up, the S&P 500 could rise to as high as 4,875 before 2023 closes out. That would imply a gain of about 8% from Friday’s close.
The early winners in artificial intelligence have strong fundamentals and less extreme valuations compared with stocks seen in previous periods of exuberance, according to Goldman Sachs Group Inc. strategists — rebutting concern that a bubble is building in AI.
“We believe we are still in the relatively early stages of a new technology cycle that is likely to lead to further outperformance,” Goldman strategists led by Peter Oppenheimer wrote. Stocks leading the AI rally trade at significantly lower levels than the biggest firms during past tech bubbles, Oppenheimer said, and today’s companies are already profitable and generate cash.
Corporate Highlights:
- Private equity giant Blackstone Inc. and vacation home-rental company Airbnb Inc. climbed on news they will be added to the S&P 500 this month.
- Oracle Corp. advanced after Barclays Plc upgraded the software company to overweight, calling it a “multi-year growth story.”
- Manchester United Plc sank after a report in the Mail On Sunday that said the Glazer family is going to take the club off the market after failing to receive offers that match their asking price.
- SoftBank Group Corp.’s Arm Holdings Ltd. is planning to raise as much as $4.87 billion in a significantly smaller initial public offering than the phone-chip designer had previously targeted.
- Chinese developer Country Garden Holdings Co. has paid coupons on two dollar bonds within grace periods, avoiding its first default and bringing some respite amid a liquidity crisis that’s shaken the nation’s financial markets.
- Chevron Corp. liquefied natural gas workers in Australia threatened two weeks of 24-hour rolling outages at two major export plants from mid-September, in an escalation of a dispute that threatens global fuel supply.
- Illumina Inc. named Agilent Technologies Inc.’s Jacob Thaysen as its next chief executive officer after former CEO Francis deSouza abruptly left the DNA-sequencing giant amid an investor proxy fight and regulatory opposition to a major acquisition.
Key events this week:
- Eurozone retail sales, Wednesday
- Germany factory orders, Wednesday
- US trade, Wednesday
- Canada rate decision, Wednesday
- Bank of England Governor Andrew Bailey testifies to the UK parliament’s Treasury Select Committee, Wednesday
- Federal Reserve issues Beige Book economic survey, Wednesday
- Boston Fed President Susan Collins speaks, Wednesday
- Dallas Fed President Lorie Logan speaks, Wednesday
- China trade, forex reserves, Thursday
- Eurozone GDP, Thursday
- US initial jobless claims, Thursday
- Bank of Canada Governor Tiff Macklem to speak on the Economic Progress Report, Thursday
- Atlanta Fed President Raphael Bostic speaks, Thursday
- New York Fed President John Williams participates in moderated discussion at the Bloomberg Market Forum, Thursday
- Japan GDP, Friday
- Germany CPI, Friday
- US wholesale inventories, consumer credit, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 fell 0.2% as of 9:41 a.m. New York time
- The Nasdaq 100 fell 0.2%
- The Dow Jones Industrial Average fell 0.1%
- The Stoxx Europe 600 was little changed
- The MSCI World index fell 0.4%
Currencies
- The Bloomberg Dollar Spot Index rose 0.5%
- The euro fell 0.6% to $1.0735
- The British pound fell 0.4% to $1.2569
- The Japanese yen fell 0.6% to 147.42 per dollar
Cryptocurrencies
- Bitcoin fell 0.3% to $25,751.67
- Ether rose 0.3% to $1,632.4
Bonds
- The yield on 10-year Treasuries advanced five basis points to 4.22%
- Germany’s 10-year yield advanced one basis point to 2.59%
- Britain’s 10-year yield advanced two basis points to 4.48%
Commodities
- West Texas Intermediate crude rose 1.8% to $87.08 a barrel
- Gold futures fell 0.5% to $1,958 an ounce
This story was produced with the assistance of Bloomberg Automation.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.