US equities and Treasuries resumed their slide as investors contemplated the prospect of higher interest rates and a looming government shutdown. The dollar extended its climb into a sixth day.
(Bloomberg) — US equities and Treasuries resumed their slide as investors contemplated the prospect of higher interest rates and a looming government shutdown. The dollar extended its climb into a sixth day.
The S&P 500 Index and Nasdaq 100 edged lower as oil jumped to a one-year high amid dwindling crude stockpiles stirring up worries about the health of consumers. The blue-chip Dow Jones Industrial Average, home to industry stalwarts including Johnson & Johnson and Intel Corp., resumed a decline after falling below its 200-day moving average — a technical signal that suggests the index has become oversold.
With a potential shutdown looming by the end of the month and an autoworkers’ strike dragging on, traders are on edge waiting for any sign that Federal Reserve officials may soften their hawkish message.
“If these downside scenarios hit the US economy, we might then have to do less with our monetary policy to bring inflation back down to 2% because the government shutdown or the auto strike may slow the economy for us,” Minneapolis Fed President Neel Kashkari said in an interview on CNN.
Read more: Fed May Do Less If Risks Like Shutdown Hit, Kashkari Says
Traders are honing in on speeches from Fed Chair Jerome Powell and a slew of other central bank officials later this week. Data Friday on the Fed’s preferred inflation measure, the personal consumption expenditures price index, will also be closely watched.
Evercore ISI’s Krishna Guha said some tempering of the central bank’s messaging may be possible but an about-face is unlikely.
“Investors are looking ahead to upcoming speaking events as potentially providing an opportunity for the Fed leadership to dial it back with a view to curtailing the tightening in financial conditions,” said the firm’s vice chairman. “We do not think there is any realistic prospect of any early U-turn absent a further dramatic surge in yields.”
Treasury yields edged higher, once again approaching the recent 16-year highs sparked by speculation the Federal Reserve will keep policy restrictive into next year, or longer. The ICE BofA MOVE Index — which tracks expected bond volatility — hit the highest in a month.
Appetite for the dollar continued to climb as a gauge of the greenback rose for sixth-day, on track for its longest winning streak in a year.
The Federal Reserve Bank of New York’s measure of how much bond investors are compensated for holding long-term debt turned positive for the first time since June 2021, suggesting traders are betting on elevated policy rates.
Read more: Treasury ‘Term Premium’ Gauge Positive for First Time Since 2021
West Texas Intermediate topped $93 a barrel. US consumer confidence has taken a knock from higher costs at the pump and the spreading impact of aggressive rate hikes.
A gauge of consumer sentiment dropped to 103 from a revised 108.7 in August, missing the median estimate of 105.5 in a Bloomberg survey of economists.
“We are at an inflexion point in the economy and the bond market,” Bob Michele, CIO for fixed income at JPMorgan Asset Management, said in an interview with Bloomberg Television. “The last 15 years were not normal, we got to a structural low and now we are going to revert to something that is more normal.”
Read Surveillance Newsletter: JPMorgan’s Lonely Bond Bull Signals New Conviction
Key events this week:
- 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:
- The S&P 500 fell 0.4% as of 12:07 p.m. New York time
- The Nasdaq 100 fell 0.3%
- The Dow Jones Industrial Average fell 0.5%
- The Stoxx Europe 600 fell 0.2%
- The MSCI World index fell 0.4%
- The Bloomberg Dollar Spot Index rose 0.4%
- The euro fell 0.6% to $1.0506
- The British pound fell 0.3% to $1.2121
- The Japanese yen fell 0.3% to 149.49 per dollar
- Bitcoin rose 0.5% to $26,273.1
- Ether rose 0.8% to $1,600.1
- The yield on 10-year Treasuries advanced five basis points to 4.58%
- Germany’s 10-year yield advanced four basis points to 2.84%
- Britain’s 10-year yield advanced three basis points to 4.36%
- West Texas Intermediate crude rose 3.9% to $93.93 a barrel
- Gold futures fell 1.1% to $1,899.30 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Cecile Gutscher, Alice Atkins, Sagarika Jaisinghani and Sujata Rao.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.