Stocks Fall As Yields Rise On ISM, Fed’s Remarks: Markets Wrap
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(Bloomberg) -- Wall Street traders sent both stocks and bonds lower after hotter-than-estimated economic data and signals that the Federal Reserve isn’t ready to call victory over inflation just yet.
Treasuries came under renewed pressure, with two-year yields heading toward their highest levels in 2024. Fed swaps almost wiped out the odds of a March interest-rate move, and the chances of a May cut have also been reduced. The dollar was on track for its strongest since November, while the S&P 500 lost steam after closing at a record Friday. The Dow Jones Industrial Average fell about 1%.
The US service sector expanded in January by the most in four months after coming close to stagnating at the end of 2023, helped by a pickup in orders and employment. The Institute for Supply Management’s overall gauge of services increased to 53.4 — remaining above the 50 level that indicates expansion. The group’s metric of prices paid for materials jumped, showing that costs are rising at a faster pace.
Traders also waded through remarks from Fed speakers, with Jerome Powell reiterating that policymakers will likely wait beyond March to cut rates in an interview conducted Thursday with CBS’s that aired Sunday evening. Fed Bank of Minneapolis President Neel Kashkari said Monday that officials have time to gauge incoming data before cutting borrowing costs.
To Thierry Wizman at Macquarie, the shift in the market’s assessment of when the Fed will begin to cut its policy rate seems valid.
“We had always though that June was the likelier month for a cut in view of the Fed’s prudence,” he noted. “What does worry us, though, is whether the ongoing strength of the US job market in January means that the US consumer will stay strong, thereby undoing the disinflationary trend, and extending tight monetary policy more indefinitely.”
The world’s major central banks mustn’t drop their guard in the fight against inflation as it’s too soon to say if sharp interest rate increases have contained underlying price pressures, the OECD said.
American shoppers won’t be deterred by mounting credit-card bills or the recent ripple of layoffs, according to the latest Bloomberg Markets Live Pulse survey. More than half of 463 respondents said spending will stay strong or get even stronger in 2024, with consumers set to keep shelling out for airline tickets, restaurant meals and concerts.
The Senior Loan Officer Opinion Survey on Bank Lending Practices, known as SLOOS, will also be on the radar Monday. Back in November, the Fed said US banks broadly reported tight lending standards and weak demand for loans in the third quarter.
“We don’t find it unreasonable to assume resilient credit conditions will remain the prevailing theme given the ongoing strength in growth and consumption and the fact the Fed is widely expected to begin lowering policy rates in the not-too-distant future,” said Ian Lyngen at BMO Capital Markets.
Corporate Highlights:
- Boeing Co. found more mistakes with holes drilled in the fuselage of its 737 Max jet, a setback that could further slow deliveries on a critical program already restricted by regulators over quality lapses.
- Caterpillar Inc., one of the world’s largest manufacturers of heavy machinery, batted away concerns of a global economic slowdown after reporting higher fourth-quarter sales in its energy and transportation business, which helped it to post profit that topped analysts’ expectations.
- McDonald’s Corp.’s sales missed investor expectations in the fourth quarter as growth decelerated, hurt in part by the conflict in the Middle East.
- Tyson Foods Inc. posted quarterly earnings that beat even the highest of analysts’ estimates, with improving results from its chicken, pork and prepared food businesses more than offsetting losses at its beef operation.
- Snap Inc. is reducing its workforce by roughly 10% worldwide, joining the chorus of technology companies that have announced fresh rounds of cuts since the start of the year.
- Estée Lauder Cos. said it’s cutting as many as 3,000 positions as part of a restructuring plan to put one of the world’s largest beauty companies back on track.
- Novo Nordisk A/S agreed to buy three manufacturing plants for $11 billion to help it meet surging demand for the obesity drug Wegovy and diabetes shot Ozempic.
- An experimental weight-loss shot from Amgen Inc. appears to keep weight off even after patients stop taking it.
Key events this week:
- Reserve Bank of Australia’s rate decision, Tuesday
- Eurozone retail sales, Tuesday
- Germany factory orders, Tuesday
- UBS earnings, Tuesday
- Bank of Canada Governor Tiff Macklem speaks, Tuesday
- Fed’s Loretta Mester and Patrick Harker speak, Tuesday
- Germany industrial production, Wednesday
- Walt Disney earnings, Wednesday
- Fed’s Adriana Kugler and Tom Barkin speak, Wednesday
- China PPI, CPI, Thursday
- US wholesale inventories, initial jobless claims, Thursday
- Treasury Secretary Janet Yellen speaks at a Senate banking committee hearing on the Financial Stability Oversight Council annual report, Thursday
- Pharma CEOs speak at a Senate panel on prescription drug prices, Thursday
- ECB Chief Economist Philip Lane speaks, Thursday
- European Central Bank publishes economic bulletin, Thursday
- US CPI revisions, Friday
- Germany CPI, Friday
- President Joe Biden hosts German Chancellor Olaf Scholz at the White House, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 fell 0.6% as of 10:25 a.m. New York time
- The Nasdaq 100 fell 0.6%
- The Dow Jones Industrial Average fell 1%
- The Stoxx Europe 600 fell 0.2%
- The MSCI World index fell 0.7%
Currencies
- The Bloomberg Dollar Spot Index rose 0.5%
- The euro fell 0.5% to $1.0730
- The British pound fell 0.7% to $1.2538
- The Japanese yen fell 0.2% to 148.64 per dollar
Cryptocurrencies
- Bitcoin rose 0.1% to $42,812.64
- Ether rose 0.3% to $2,306.65
Bonds
- The yield on 10-year Treasuries advanced 13 basis points to 4.15%
- Germany’s 10-year yield advanced eight basis points to 2.32%
- Britain’s 10-year yield advanced 11 basis points to 4.02%
Commodities
- West Texas Intermediate crude fell 1% to $71.54 a barrel
- Spot gold fell 1% to $2,019.54 an ounce
This story was produced with the assistance of Bloomberg Automation.
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