Bond yields climb as stocks struggle during Fed hike: Markets retreat – Yahoo Finance

(Bloomberg) — Treasury yields rose and stocks fell ahead of the Federal Reserve’s decision, as traders bet rates will stay higher for longer to avoid a surge in inflation. Brent oil briefly exceeded $95 per barrel.

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U.S. five- and 10-year yields rose to their highest levels since 2007. Most major S&P 500 groups fell, but the index rose well past session lows, led by gains in some mega-caps like Apple Inc. and Tesla Inc. Online grocery delivery company Instacart jumped 12% in its Nasdaq debut. Walt Disney Co. has abandoned plans to nearly double its theme park spending to $60 billion over the next 10 years. The loonie climbed after inflation data in Canada.

Read: GLOBAL OVERVIEW: $100 oil? What this means for Fed, ECB and BOE rates

Fed Chairman Jerome Powell and his colleagues are largely expected to keep rates steady on Wednesday. Yet supply shocks such as rising oil prices pose a dilemma for the central bank because they simultaneously boost inflation and dampen economic growth. Rising energy prices helped push the United States into recession in the mid-1970s, as well as in the early 1980s and 1990s.

“The risks of higher headline inflation in the coming months are increasing and that should make the Fed’s job more difficult,” said Ed Moya, senior market analyst for the Americas at Oanda. “Are policymakers confident that despite a resilient labor market, price pressures will continue to ease? If core inflation shows that it is struggling to continue falling, the regime of higher and longer interest rates will last much longer than the market anticipates.

In fact, after pricing in a “spike” in interest rates in November, traders’ bets have recently shifted toward December – suggesting the market may be giving credence to signals of a deeper pause in interest rates. the central bank, according to Christopher Jacobson of Susquehanna International. Band.

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Read: Do you do a dot plot? Understanding How the Fed Plans: QuickTake

Investors are paying particular attention to the Fed’s updated quarterly interest rate projections, known as the dot plot, which will be released Wednesday after the policy meeting. A focus will be on whether those forecasts continue to reveal a median view of another quarter-point hike this year and whether the 2024 forecast reduces the 100 basis points of rate cuts that officials were forecasting. in June.

For Fawad Razaqzada of City Index and FOREX.com, if the Fed revises the 2024 median chart to indicate fewer rate cuts than previously expected, it would discourage bearish bets on the dollar.

Since the Fed’s June forecast, the disinflationary process has stabilized somewhat, but inflation risks are increasing, said Lauren Goodwin of New York Life Investments. As a result, officials will likely keep the additional quarter-point hike in their projections, she noted – adding that a final increase could possibly be implemented in November.

“Our Fed checklist suggests the bar for a rate cut is still high,” Goodwin said. “Unless there is a significant economic slowdown, inflation will likely decline slowly and non-linearly. In other words, for the Fed to cut rates next summer – as the bond market has predicted – we think we would have to see a recession.”

Weak housing data

Data on Tuesday showed that construction of new homes in the United States fell to its lowest level since June 2020, underscoring the consequences of declining housing affordability.

The sharp decline is concerning because housing is one of the pillars of the economy that has held up much better than expected, said Chris Zaccarelli, chief investment officer at Independent Advisor Alliance.

“If this turns out to be the first crack in an otherwise bulletproof consumer, then it could change the narrative from an economy impervious to rapid interest rate hikes to one economy vulnerable and susceptible to recession,” he added.

Company Highlights

• Starbucks Corp. fell as TD Cowen downgraded it to market perform, signaling “worrisome” pressures that could challenge same-store sales in China.

• Deere & Co. fell after Evercore ISI downgraded the agricultural equipment company’s rating from outperform to line.

• Block Inc. fell as the digital payments company announced the departure of Alyssa Henry, CEO of its Square business, and Jack Dorsey taking over.

• Royal Caribbean Cruises Ltd. and Carnival Corp. rose after being upgraded by Truist Securities, which cited strong trends and “cooling” stocks.

• Cboe Global Markets Inc. rose after the company announced a CEO change that analysts described as unexpected, while they were positive about the appointment to fill the role.

• Amazon.com Inc. says it will hire 250,000 employees during the holiday season and raise average pay for logistics workers to about $20.50 an hour, in an effort to recruit and retain workers in a context of labor shortage.

• CVC Capital Partners is preparing for a possible listing as soon as November amid improving investor sentiment toward new stock offerings, people with knowledge of the matter said.

Key events this week:

• Japanese trade, Wednesday

• Prime rates for Chinese loans, Wednesday

• UK CPI, Wednesday

• Federal Reserve policy meeting followed by Fed Chairman Jerome Powell’s press conference on Wednesday

• The Bank of Canada releases the summary of its September policy meeting on Wednesday

• Euro zone consumer confidence, Thursday

• Bank of England policy meeting on Thursday

• US leading index, initial jobless claims and existing home sales, Thursday

• Chinese Bund Summit, Friday

• Japan CPI, PMI, Friday

• Bank of Japan rate decision Friday

• Eurozone S&P Global Eurozone PMI, Friday

• US S&P Global Manufacturing PMI, Friday

Some of the main market movements:

Actions

• The S&P 500 fell 0.2% as of 4 p.m. New York time

• The Nasdaq 100 fell 0.2%

• The Dow Jones Industrial Average fell 0.3%

• The MSCI World index fell 0.2%

Currencies

• Bloomberg Dollar Spot Index little changed

• The euro fell 0.1% to $1.0681

• The British pound rose 0.1% to $1.2396

• The Japanese yen fell 0.1% to 147.82 per dollar

Cryptocurrencies

• Bitcoin rose 1.5% to $27,176.23

• Ether rose 0.4% to $1,643.55

Obligations

• The 10-year Treasury yield rose six basis points to 4.36%

• The German 10-year yield rose three basis points to 2.74%

• The UK 10-year yield fell five basis points to 4.34%

Raw materials

This story was produced with the help of Bloomberg Automation.

–With help from Isabelle Lee, Liz Capo McCormick and Michael Mackenzie.

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