Stocks Fall, Dollar Climbs as Focus Turns to Warsh: Markets Wrap
(Bloomberg) — Equities kicked off July on a cautious note as traders awaited comments from Federal Reserve Chair Kevin Warsh at a time when bets on US interest rate hikes are building. The dollar and bond yields rose.
S&P 500 futures dipped 0.2%. Europe’s benchmark slipped 0.5% from a record high, while Asian stocks were little changed. The greenback advanced 0.3%, extending gains after its best month since March, as money markets priced about a one-in-three chance of a rate increase at the next policy meeting.
Warsh will make his first public appearance abroad as head of the Fed alongside peers from Europe and the UK at Sintra, Portugal, on Wednesday. After his pledge last month to deliver price stability sent the dollar and shorter-dated Treasury yields higher, traders will be looking for further clues on the rate path for the year ahead.
Investors are increasingly shifting focus to growing price pressures in an economy that’s firing strongly, with expectations building for a solid jobs report on Thursday. ADP Research data on Wednesday showed private payrolls rising at a brisk pace, despite missing elevated expectations.
“Given the absence of forward guidance from the Fed now, there is going to be intense focus on any comments” from Warsh, wrote Chris Turner, a foreign-exchange strategist at ING Bank NV. “A focus on price stability can keep the dollar bid.”
Equities were taking a breather after the S&P 500 capped its best quarter in six years. Chipmakers, which did much of the heavy lifting as investors piled into AI beneficiaries, were broadly weaker in US premarket trading. Nike Inc. dropped 2.1% following a cautious outlook. Software names including Microsoft Corp. gained.
A further rise in rate hike expectations could be the catalyst for a correction, in particular for technology stocks, which are priced on future earnings, said Justin Onuekwusi, chief investment officer at St. James’s Place.
“The pricing for a hike has moved up, but from where we are now to get to a hike in July feels like a bit of a jump,” Onuekwusi said. “You had oil prices falling last quarter, which makes it hard for a central bank to put its foot on the brake and start to hike rates into that.”
Brent crude extended declines, falling 1.2% to around $72 a barrel. US negotiators held positive discussions in Qatar and progress is being made on technical talks with Iran, according to a senior administration official, as the countries seek to turn an interim peace deal into a permanent end to the war.
In Europe, bonds extended losses even as euro-area inflation eased more than expected. Money markets continue to see a greater than 50% chance that the European Central Bank will raise interest rates by a quarter-point by September, with a full hike almost priced by year-end.
Stocks are set to extend their searing second-quarter rally, with earnings growth at technology companies a key driver, according to Peter Oppenheimer at Goldman Sachs Group Inc.
“As long as earnings continue to be good and broaden out, I think we will get continued gains through the second half,” the chief global equity strategist at Goldman said in a Bloomberg Television interview. “Probably lower than what we saw in the first half — but I think it will quite broadly based.”
What Bloomberg Strategists Say:
“The highlight today is the Sintra policy panel at 2 p.m. BST. I’m not convinced it will change much, particularly for the Fed, but if anything it should support continued US fixed income underperformance versus Europe.”
— Skylar Montgomery Koning, Macro Strategist. Click here for the analysis.
Corporate Highlights:
BYD Co. is poised to reclaim the title of the world’s top seller of fully electric cars from Tesla Inc. as the Chinese automaker ships an increasing number of vehicles abroad. Kroger Co. reached a deal to acquire the Giant Eagle Inc. grocery chain for about $1.65 billion. Michael Platt’s BlueCrest Capital Management said the UK is “no longer a serious contender” as a place to do business after the firm lost a £200 million ($265 million) UK Supreme Court ruling over how some of its senior traders should be taxed. MGX has raised $49 billion for one of the biggest ever funds dedicated to artificial intelligence deals, propelling the two-year-old Abu Dhabi firm into the ranks of the most consequential investors in the sector globally. Nike Inc. shares fell about 1.5% in extended trading after executives on Tuesday gave a cautious outlook and warned about elevated consumer anxiety, adding to investor concerns about the sportswear company’s painfully slow turnaround. Some of the main moves in markets:
Stocks
S&P 500 futures fell 0.2% as of 8:28 a.m. New York time Nasdaq 100 futures fell 0.5% Futures on the Dow Jones Industrial Average fell 0.3% The Stoxx Europe 600 fell 0.5% The MSCI World Index fell 0.2% Currencies
The Bloomberg Dollar Spot Index rose 0.3% The euro fell 0.4% to $1.1381 The British pound fell 0.1% to $1.3244 The Japanese yen was little changed at 162.69 per dollar Cryptocurrencies
Bitcoin fell 0.2% to $58,502.39 Ether fell 0.3% to $1,569.58 Bonds
The yield on 10-year Treasuries advanced two basis points to 4.49% Germany’s 10-year yield advanced three basis points to 2.89% Britain’s 10-year yield advanced five basis points to 4.80% Commodities
West Texas Intermediate crude fell 0.9% to $68.86 a barrel Spot gold rose 0.5% to $4,027.06 an ounce This story was produced with the assistance of Bloomberg Automation.
–With assistance from Sujata Rao and James Hirai.
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