USD & yields higher while stocks struggle as decent data marginally trims rate cut bets | investingLive
It was a choppy session across markets with equities and Treasuries both finishing lower while the Dollar firmed and crude prices bounced back into the green. The big story was the strong set of US Flash PMI numbers that surprised to the upside and came with hawkish Fed commentary, which sparked selling in bonds and saw some minor cooling in Fed rate cut bets. The data, alongside hawkish remarks from Fed officials, sets the tone ahead of Chair Powell’s speech at Jackson Hole.
Equities:
Major US benchmarks like the NAS (-0.5%), S&P (-0.35%) and the Dow (-0.20%) ended the day lower. Most sectors were in the red, especially Consumer Staples and Discretionary after a weak earnings showing from names like Walmart and Coty. Energy and Materials were the only bright spots, helped by higher crude prices. Meta made headlines with a hiring freeze in its AI division, while Boeing was said to be in talks to sell as many as 500 planes to China. In the Mag-7, Google is the only name that managed to grind out a gain, with the other 6 finishing in the red, with Tesla the worst performer down -1.17%.
Forex:
The Dollar was king of the hill, riding a stronger flash PMI surprise and hawkish Fed commentary. Manufacturing swung back into expansion at 53.3 (up from the prior of 49.8), and services rose more than expected, with the survey warning that inflation could stay above target. This wasn’t the kind of data that supports rate cuts, and as a result we saw markets trim about 5 basis points of expected easing by year-end. That was enough to push G10 currencies mostly lower, with safe havens like the Yen and Franc hit hardest as yield rose. EUR/USD briefly tested 1.16 but held above it, with a bit of relief coming from better-than-expected Eurozone PMIs. Sterling slid after an early pop on solid UK PMI data, while the Aussie and Kiwi were relative outperformers but still ended slightly weaker against the Dollar.
Commodities:
Oil prices had a rollercoaster day, slumping in the European morning before reversing higher to settle near the day’s highs. WTI closed just above $63.50 bbl. The rally was helped by worries that Russia and Ukraine are no closer to peace, with reports of one of the heaviest Russian attacks to date. On top of that, strong US data fed into the demand side of the story. Gold wasn’t a major headline but stayed under pressure as real yields pushed up.
Bonds:
Treasuries sold off as the PMI strength and hawkish Fed speak reinforced the idea that rate cuts may not come as quickly as markets is hoping. The curve flattened with the 2yr yield climbing over 4bps to 3.79% and the 10yr up about 3bps to 4.33%. Inflation breakevens also moved higher across the curve. Futures markets trimmed rate cut bets by about 5 basis points, now pricing just under two quarter-point cuts by year-end.
All eyes remain on Fed Chair Powell at Jackson Hole later today.