Wall Street was hit by heightened volatility as Jerome Powell said Federal Reserve officials will proceed carefully with interest-rate hikes, while noting there’s evidence that policy isn’t “too tight” right now.
(Bloomberg) — Wall Street was hit by heightened volatility as Jerome Powell said Federal Reserve officials will proceed carefully with interest-rate hikes, while noting there’s evidence that policy isn’t “too tight” right now.
After multiple twists and turns, the S&P 500 retreated. Tesla Inc. tumbled 10% on disappointing earnings. Treasury 10-year yields approached 5%. Two-year rates, which are more sensitive to imminent Fed moves, fell. Swaps are now pricing the first Fed cut in July — brought forward from September. Traders see less than a 50% chance that the central bank will lift rates one more time in the current tightening cycle.
Powell suggested the US central bank is inclined to hold interest rates steady again at its next meeting, while leaving open the possibility of another hike later if policymakers see further signs of resilient economic growth.
“Jay Powell is putting to bed any chance of a Nov. 1 rate hike. As to not let markets get carried away though, he left the door open for more rate hikes,” said Peter Boockvar, author of the Boock Report. “Short rates are falling as they are likely done, but the rise in long rates is proving again that they are losing their grip on that part of the market.”
“The Fed is not yet convinced about where inflation will settle over the next few quarters, which means that the committee will not pre-commit,” said Jeffrey Roach, chief economist for LPL Financial. “Each meeting will be a live meeting.”
Thursday’s economic reports were mixed. Applications for US unemployment benefits dropped to the lowest level since January as the labor market kept powering ahead. Sales of previously owned US homes fell to the lowest level since 2010 as affordability worsened even further.
Powell also said the recent run-up in bond yields is mostly due to rising term premiums, detailing several factors that could be causing the increased yield demand from investors, including the central bank’s quantitative-tightening program.
Fed Bank of Chicago President Austan Goolsbee said he’s hopeful the US is able to avoid a recession despite rapid and steep interest-rate hikes over the past 18 months. He emphasized the need for the Fed to ensure inflation was on track to ease to its 2% goal and for inflation expectations to stay anchored.
Traders continued to keep a close eye on the latest geopolitical events.
“You see Gaza from far away now, but soon you will see it from the inside,” Israeli Defense Minister Yoav Gallant told troops gathering in southern Israel, close to the border with Gaza, reinforcing prospects for a ground invasion. To the north, Israel said it responded to the source of fire after 20 rocket and missile launches from Lebanon, including five that fell in open areas and one that was intercepted by aerial defenses.
Elsewhere, a system “incident” halted trading in hundreds of shares on the London Stock Exchange for the final 80 minutes of Thursday’s session. Stocks on the FTSE 100 Index, FTSE 250 and international orderbook weren’t affected, London Stock Exchange Group Plc said on its website.
- Netflix Inc. surged as much as 18% after posting its best quarter for subscriber growth in years.
- American Airlines Group Inc. topped expectations for profit even as its forecast for the rest of the year fell short.
- Union Pacific Corp. reported profit that topped analysts’ estimates, which had been adjusted down in the last month, as the railroad leaned on efficiency to make up for lower carloads and higher labor costs.
- AT&T Inc. raised its free cash flow guidance for the full year after posting mobile subscriber gains and profit that beat analysts’ estimates.
- Lam Research Corp.’s revenue fell for a third straight quarter, a sign demand for chipmaking equipment remains sluggish.
- Blackstone Inc., grappling with higher interest rates and stung by a pullback in dealmaking, reported a 12% decline in quarterly profit available to shareholders.
- Las Vegas Sands Corp. authorized its first share buyback program since 2020, signaling management’s confidence in the business after years of pandemic-related hardship.
Key events this week:
- Japan CPI, Friday
- China loan prime rates, Friday
- Philadelphia Fed President Patrick Harker speaks, Friday
Some of the main moves in markets:
- The S&P 500 fell 0.7% as of 2:40 p.m. New York time
- The Nasdaq 100 fell 0.7%
- The Dow Jones Industrial Average fell 0.5%
- The MSCI World index fell 0.8%
- The Bloomberg Dollar Spot Index fell 0.2%
- The euro rose 0.5% to $1.0588
- The British pound rose 0.1% to $1.2153
- The Japanese yen was little changed at 149.84 per dollar
- Bitcoin rose 1.4% to $28,655.38
- Ether was little changed at $1,563.33
- The yield on 10-year Treasuries advanced seven basis points to 4.99%
- Germany’s 10-year yield was little changed at 2.93%
- Britain’s 10-year yield advanced two basis points to 4.67%
- West Texas Intermediate crude rose 1.9% to $89.99 a barrel
- Gold futures rose 0.9% to $1,985.60 an ounce
This story was produced with the assistance of Bloomberg Automation.
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