Stocks fell, while Treasury yields rose after a stronger-than-estimated reading on the US services industry bolstered speculation the Federal Reserve will keep interest rates higher for longer.
The S&P 500 extended its drop below 4,500, while the Nasdaq 100 was down about 1% — with Tesla Inc. and Nvidia Corp. leading a selloff in big tech. Treasury two-year yields hit 5%. The dollar was little changed — after hitting the highest since March, prompting Japan and China to step up efforts to defend their currencies. Swap contracts showed bets on a Fed hike in November climbing to 60% from about 50%.
Read: JPMorgan’s Lebovitz Says Fed’s Job Just Got Harder: Surveillance
The Institute for Supply Management’s services index rose to a six-month high in August — hitting 54.5. Readings above 50 indicate expansion, and the figure topped all estimates in a Bloomberg survey of economists.
“While the relevance of the data is diminished on the margin given the post-payrolls timing of the print, the services update is nonetheless relevant to persistent no-landing optimism,” said Ben Jeffery, US rates strategist at BMO Capital Markets. “ISM services is the only top tier data of relevance this week, and once the dust settles we expect investors’ attention will return to the corporate issuance calendar with the bearish implications that holds for Treasuries.”
Financial institutions, including several foreign banks, are leading at least 10 companies tapping the US investment-grade primary market Wednesday — one day after both volume and deal count hit yearly highs.
Fedspeak
Fed Bank of Boston President Susan Collins said policymakers will need to be patient as they assess economic data to figure out their next steps and that further tightening may still be required, based on what the trends show. Collins also said she expects the central bank will “need to hold rates at restrictive levels for some time.” While demand is moderating, it continues to outpace supply, adding to price pressures.
Investors should boost their exposure to real assets as US economic growth will be stronger than expected this year while inflation remains elevated in 2024, according to KKR & Co.’s Henry McVey.
US real GDP growth will “surprise to the upside” at 2.4% in 2023, outpacing the 2% consensus of economists in an August survey, McVey, chief investment officer of KKR’s $28 billion balance sheet, wrote in a report that he co-authored with Racim Allouani and Drew Golicz.
Elsewhere, the loonie fluctuated after the Bank of Canada held rates steady, but kept the door open to further hikes. European shares slipped as German factory orders plunged.
Corporate Highlights
- United Airlines Holdings Inc. and Southwest Airlines Co. fell after cautioning of unexpectedly strong increases this quarter in the price of jet fuel, one of the industry’s largest expenses.
- Delta Air Lines Inc. rose after naming renowned former quarterback Tom Brady as a strategic adviser.
- Roku Inc., the maker of set-top boxes consumers use to watch Netflix Inc. and other streaming services, jumped after announcing plans to cut about 10% of its workforce, consolidate office space and review its content portfolio.
- General Mills Inc. rose after the food producer reaffirmed its annual outlook.
- NextGen Healthcare Inc. rallied after private equity firm Thoma Bravo agreed to acquire the health-records software company.
- Block Inc. slipped after UBS Group AG said the payments company is likely to see a slowdown in gross profit growth, cutting its recommendation to neutral.
- Microsoft Corp. and Apple Inc. face fresh investigations from European Union regulators as part of the bloc’s landmark digital markets clampdown, which could end up forcing significant changes in how the firms do business in the region.
- Alphabet Inc. tentatively settled claims that Google Play abuses its control over Android mobile applications, potentially resolving complaints over the company’s policies filed by consumers and attorneys general of about three dozen states.
- China’s top chipmaker, Semiconductor Manufacturing International Corp., “warrants investigation” as the company appears to have violated US sanctions by supplying components to Huawei Technologies Co., a US lawmaker said.
Key events this week:
- China trade, forex reserves, Thursday
- Eurozone GDP, Thursday
- US initial jobless claims, Thursday
- Bank of Canada Governor Tiff Macklem to speak on the Economic Progress Report, Thursday
- Atlanta Fed President Raphael Bostic speaks, Thursday
- New York Fed President John Williams participates in moderated discussion at the Bloomberg Market Forum, Thursday
- Japan GDP, Friday
- Germany CPI, Friday
- US wholesale inventories, consumer credit, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 fell 0.7% as of 10:34 a.m. New York time
- The Nasdaq 100 fell 0.8%
- The Dow Jones Industrial Average fell 0.4%
- The Stoxx Europe 600 fell 0.5%
- The MSCI World index fell 0.5%
Currencies
- The Bloomberg Dollar Spot Index rose 0.2%
- The euro fell 0.1% to $1.0707
- The British pound fell 0.6% to $1.2490
- The Japanese yen rose 0.1% to 147.56 per dollar
Cryptocurrencies
- Bitcoin fell 0.4% to $25,595.5
- Ether fell 0.4% to $1,622.13
Bonds
- The yield on 10-year Treasuries advanced two basis points to 4.28%
- Germany’s 10-year yield advanced three basis points to 2.64%
- Britain’s 10-year yield declined one basis point to 4.51%
Commodities
- West Texas Intermediate crude was little changed
- Gold futures fell 0.4% to $1,943.90 an ounce
This story was produced with the assistance of Bloomberg Automation.
