(Bloomberg) — Stocks and bonds retreated as data showing US business activity accelerated amid a pickup in inflation reinforced speculation the Federal Reserve will remain on hold.
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The S&P 500 dropped below 5,300, with all megacaps down except Nvidia Corp. The giant chipmaker jumped 10% on a solid outlook, topping the historic $1,000 mark. The Dow Jones Industrial Average lost over 1%, led by a plunge in Boeing Co. — which said it will continue to burn cash this quarter and in the full year. Treasury yields climbed, with the move led by shorter maturities.
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Swaps now fully price in a full quarter-point rate cut in December, versus November a day earlier. Growth in activity at service providers this month was the fastest in a year and manufacturing output expanded at a quicker pace. Such resilience is making it difficult for inflation to cool, helping explain why the Fed is intent on keeping rates higher for longer.
“Fed members have indicated they want to see more progress on inflation – fortunately the US economy still looks robust enough to take an extended rate pause,” said Don Rissmiller at Strategas Securities. “We continue to look for the first Fed rate cut in September.”
Treasury two-year yields climbed six basis points to 4.92%. The dollar edged up. Bitcoin fell 2%. Oil and gold retreated.
US policymakers earlier this month coalesced around a desire to hold rates higher for longer and “many” questioned whether policy was restrictive enough to bring inflation down to their target, according to Fed minutes released this week.
“The minutes are a reminder that while the Fed does not see another rate hike as likely — and certainly does not see it as a base-case — it will not rule out hikes if inflation does not behave,” said Chris Low at FHN Financial.
Meantime, another round of blowout earnings from artificial-intelligence darling Nvidia and the economy’s steady advance mean the S&P 500 likely has further room to rise, according to JPMorgan Chase & Co.’s trading desk.
“With the AI-theme still delivering and the macro hypothesis intact, we are likely to continue to make new all-time highs,” the team including Head of US Market Intelligence Andrew Tyler wrote in a note to clients.
Key events this week:
Japan CPI
Canada retail sales
Germany GDP
US durable goods, consumer sentiment, Friday
Fed’s Christopher Waller speaks, Friday
Some market moves:
Stocks
The S&P 500 fell 0.4% as of 1:45 p.m. New York time
The Nasdaq 100 was little changed
The Dow Jones Industrial Average fell 1.3%
The MSCI World Index fell 0.3%
Currencies
The Bloomberg Dollar Spot Index rose 0.1%
The euro fell 0.1% to $1.0812
The British pound fell 0.1% to $1.2699
The Japanese yen fell 0.1% to 156.98 per dollar
Cryptocurrencies
Bitcoin fell 2.2% to $67,889.68
Ether rose 1.6% to $3,809.07
Bonds
The yield on 10-year Treasuries advanced six basis points to 4.48%
Germany’s 10-year yield advanced six basis points to 2.60%
Britain’s 10-year yield advanced three basis points to 4.26%
Commodities
West Texas Intermediate crude fell 1.1% to $76.71 a barrel
Spot gold fell 1.9% to $2,333.83 an ounce
This story was produced with the assistance of Bloomberg Automation.
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