Stocks wavered as Jerome Powell refrained from giving any clues on the outlook for interest rates a day after two US officials signaled it’s possibly too early to declare victory over inflation.
(Bloomberg) — Stocks wavered as Jerome Powell refrained from giving any clues on the outlook for interest rates a day after two US officials signaled it’s possibly too early to declare victory over inflation.
The S&P 500 struggled for direction as the Fed’s chief didn’t directly comment on the economic or monetary policy outlook at a forum in Stockholm Tuesday. Treasury two-year yields, which are more sensitive to imminent Fed moves, remained near 4.25%. The dollar wavered.
A pair of Fed officials said Monday the central bank may need to raise rates above 5% before pausing and holding for some time. Policymakers meet at the end of the month and are expected to either tighten by 50 basis points again or slow down to a quarter-point hike. Thursday’s consumer price index is forecast to show a deceleration to 6.5% in the year through December.
“We expect equities to be range-bound until there is a clear bottoming in growth/topping of policy tightening,” wrote Dennis DeBusschere, founder of 22V Research. “Once that has happened, there will be room for modest multiple expansion.”
Some of the world’s largest asset managers such as BlackRock Inc., Fidelity Investments and Carmignac are warning markets are underestimating both inflation and the ultimate peak of US rates, just like a year ago.
JPMorgan Chase & Co.’s chief Jamie Dimon said US rate hikes might need to go beyond what’s currently expected, but he’s in favor of a pause to see the full impact of last year’s increases. There’s a 50% chance current expectations are correct in assuming the Fed will boost its benchmark to about 5%, and a 50% chance it will have to go to 6%, he said in an interview aired Tuesday on Fox Business.
Meantime, hedge fund billionaire Paul Tudor Jones likened Powell’s war against inflation to an attempt at a perfect moon landing, saying the Fed chair is facing the most-challenging economic environment in 40 years. If he succeeds, stocks could climb 7% to 8% this year, but if inflation worsens he’ll need to continue raising rates, increasing the risk of a downturn, he told CNBC.
Read: Inflation’s Path From Peak Is Next Big Question for US Economy
The World Bank slashed its growth forecasts for most countries and regions, and warned that new adverse shocks could tip the global economy into a recession. Global gross domestic product will probably increase 1.7% this year, about half the pace forecast in June, the Washington-based lender said Tuesday.
Bank of America Corp. clients sold $1.4 billion of US stocks last week in the biggest weekly outflow since November, the firm’s strategists including Jill Carey Hall wrote in a note to clients. All three client groups — hedge funds, retail and institutional investors — were net sellers.
In corporate news, Microsoft Corp. is in discussions to invest as much as $10 billion in OpenAI, the creator of viral artificial intelligence bot ChatGPT, according to people familiar with its plans. Coinbase Global Inc. is firing about 950 employees, or about 20% of its workforce, as the worsening crypto slump spurs another round of layoffs at the biggest US digital-asset exchange.
As the critical earnings season is due to begin on Friday, sentiment among analysts on the broader S&P 500 has soured to a point seen few times before.
Over the past three months, analysts’ net downgrades to profit estimates for S&P 500 stocks over the next two years have risen to 32% of total changes, data compiled by Goldman Sachs Group Inc. show. Outside of 2008 and the pandemic rout of 2020, that’s the most negative reading since Goldman started tracking the data in 1998.
Key events this week:
- ECB Governing Council members speak at Euromoney conference in Vienna, Wednesday
- US CPI, initial jobless claims, Thursday
- St Louis Fed President James Bullard at Wisconsin Bankers Association virtual event, Thursday
- Richmond Fed President Thomas Barkin speaks at VBA/VA Chamber, Thursday
- China trade, Friday
- US University of Michigan consumer sentiment, Friday
- Citigroup, JPMorgan Chase, Wells Fargo report earnings, Friday
This week’s MLIVE Pulse Survey:
Some of the main moves in markets:
Stocks
- The S&P 500 fell 0.2% as of 10:32 a.m. New York time
- The Nasdaq 100 fell 0.2%
- The Dow Jones Industrial Average fell 0.1%
- The Stoxx Europe 600 fell 0.6%
- The MSCI World index fell 0.3%
Currencies
- The Bloomberg Dollar Spot Index rose 0.1%
- The euro was unchanged at $1.0730
- The British pound fell 0.3% to $1.2150
- The Japanese yen fell 0.2% to 132.11 per dollar
Cryptocurrencies
- Bitcoin rose 0.7% to $17,298.41
- Ether rose 1% to $1,331.5
Bonds
- The yield on 10-year Treasuries advanced six basis points to 3.59%
- Germany’s 10-year yield advanced seven basis points to 2.30%
- Britain’s 10-year yield advanced five basis points to 3.58%
Commodities
- West Texas Intermediate crude fell 0.2% to $74.46 a barrel
- Gold futures rose 0.2% to $1,881.40 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Peyton Forte and Isabelle Lee.
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