Stock markets retreated Tuesday as investors priced in a protracted period of high interest rates. A selloff in government bonds paused while the dollar climbed.
(Bloomberg) — Stock markets retreated Tuesday as investors priced in a protracted period of high interest rates. A selloff in government bonds paused while the dollar climbed.
The S&P 500 resumed its slide falling 0.6%, while the Nasdaq 100 lost 0.8% as the equities benchmarks gave back Monday’s modest gains. Tesla was among the laggards, slumping amid an ongoing European Union probe of Chinese electric vehicle subsidies, while Comerica Inc. dipped after an analyst downgrade.
Home prices in the US rose for a sixth month in July as buyers battled over a tight supply of listings, according to seasonally adjusted data from S&P CoreLogic Case-Shiller. Data on US consumer confidence and new home sales expected later Tuesday could provide more clues on the outlook for the economy and monetary policy. The Treasury’s auction of two-year notes will also be closely monitored.
Yields on Treasuries dropped after hitting decade highs. The Bloomberg dollar index edged higher following its strongest close since December. Oil retreated as the impact of a rising dollar sapped demand.
The threat of tight policy is undoing some of the market’s biggest gains this year, in high-flying tech stocks. These growth companies are prized for their long-term prospects but hold less appeal when future profits get discounted at higher rates. That’s reflected in growing short positions against the technology-heavy Nasdaq 100 Index.
Positioning in the Nasdaq 100 is now one-sided net short at $8.1 billion, with all long positions unwound, according to Citigroup Inc. strategists.
Read more: Short Positions Pile Up in Nasdaq Futures, Citi Strategists Say
One Fed speaker after another in the past week has delivered emphatic messages that they will keep policy tighter for longer if the economy is stronger than expected. Federal Reserve Bank of Minneapolis President Neel Kashkari said he expects the US central bank will need to raise interest rates one more time this year.
“Investors are beginning to realize that a ‘higher for longer’ interest rate environment is a likely outcome and are slowly adjusting to the ‘new normal,’” Paul Nolte, a senior wealth manager at Murphy & Sylvest Wealth Management, wrote in a note. “Higher-for-longer has been the mantra of the Fed for a few months. It is only recently that the markets have been taking them at their word.”
Jamie Dimon, chairman and chief executive of JPMorgan Chase & Co., floated the idea US interest rates could reach 7%, a worst-case scenario that could catch consumers and businesses off-guard. Meanwhile, a warning that a US government shutdown would reflect poorly on America’s credit rating from Moody’s Investors Service kept traders focused on an end-of-month deadline.
Key events this week:
- US new home sales, Conference Board consumer confidence, Tuesday
- ECB’s Philip Lane speaks on monetary policy, Tuesday
- China industrial profits, Wednesday
- US durable goods, Wednesday
- Eurozone economic confidence, consumer confidence, Thursday
- US initial jobless claims, GDP, Thursday
- Fed Chair Jerome Powell town hall meeting with educators while Richmond Fed President Tom Barkin, Chicago Fed President Austan Goolsbee make speeches, Thursday
- Eurozone CPI, Friday
- Japan unemployment, industrial production, retail sales, Tokyo CPI, Friday
- US consumer spending, wholesale inventories, University of Michigan consumer sentiment, Friday
- ECB President Christine Lagarde speaks, Friday
- New York Fed President John Williams speaks, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 fell 0.6% as of 9:36 a.m. New York time
- The Nasdaq 100 fell 0.7%
- The Dow Jones Industrial Average fell 0.5%
- The Stoxx Europe 600 fell 0.5%
- The MSCI World index fell 0.6%
Currencies
- The Bloomberg Dollar Spot Index rose 0.1%
- The euro was little changed at $1.0589
- The British pound fell 0.3% to $1.2180
- The Japanese yen was little changed at 148.97 per dollar
Cryptocurrencies
- Bitcoin fell 0.3% to $26,202.19
- Ether was little changed at $1,586.14
Bonds
- The yield on 10-year Treasuries was little changed at 4.53%
- Germany’s 10-year yield was little changed at 2.79%
- Britain’s 10-year yield declined two basis points to 4.31%
Commodities
- West Texas Intermediate crude was little changed
- Gold futures fell 0.6% to $1,924.20 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Alice Atkins, Richard Henderson, Alex Nicholson and Cecile Gutscher.
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