While retail sales stagnated last month on declines in auto purchases and gasoline prices, other categories indicated resilient consumer spending. Excluding gasoline and autos, sales rose a better-than-expected 0.7%.

US stocks have rallied on signs of peaking inflation and an earnings-reporting season that saw four out of five companies meeting or beating estimates. Yet, prospects of the Fed continuing to raise rates to cool stubbornly high inflation and tip the economy into a recession has weighed on sentiment.

“A correction from this level is very, very possible as earnings and margins deteriorate going into 2023,” Marco Pirondini, head of equities, US, and portfolio manager at Amundi US. “We expect the Fed to continue to increase rates, we expect the economy to slow down, possibly even enter a recession. The probability of a recession next year is higher than normal. So once you put all these things together, I think a more prudent approach is important.”

In corporate news, Target Corp. fell as profit lagged behind Wall Street’s estimates, while Lowe’s Cos. gained after the home-improvement retailer reported earnings that beat estimates even as renovators wrestle with a slumping US housing market.

It’s been a choppy day for risk sentiment. Earlier on Wednesday, stocks rose in Asia amid speculation that China may deploy more stimulus to shore up its ailing economy. Some of those equity gains were surrendered when European trading opened and the focus turned to the Fed as well as UK inflation, which soared to double digits for the first time in four decades.

The dollar rose 0.3% on Wednesday. Treasuries fell, with the 10-year yield adding seven basis points and the two-year rate climbing eight basis points. The spread between these two yields remained deeply inverted at about 47 basis points.

Inflation remains the most closely-watched indicator in the second half. Will it come down gradually, or will it stay elevated, forcing the Fed to keep raising rates aggressively? Have your say in the anonymous MLIV Pulse survey.

Here are some key events to watch this week:

• Federal Reserve July minutes, Wednesday
• UK CPI, US retail sales, Wednesday
• Australia unemployment, Thursday
• U.S. existing home sales, initial jobless claims, Conference Board leading index, Thursday
• Fed’s Esther George, Neel Kashkari speak at separate events, Thursday

Some of the main moves in markets:

Stocks

• The S&P 500 fell 1.2% as of 11:48 a.m. New York time
• The Nasdaq 100 fell 1.7%
• The Dow Jones Industrial Average fell 0.9%
• The Stoxx Europe 600 fell 0.9%
• The MSCI World index fell 1%

Currencies

• The Bloomberg Dollar Spot Index rose 0.4%
• The euro was little changed at $1.0164
• The British pound fell 0.5% to $1.2037
• The Japanese yen fell 0.9% to 135.39 per dollar

Bonds

• The yield on 10-year Treasuries advanced 10 basis points to 2.90%
• Germany’s 10-year yield advanced 11 basis points to 1.08%
• Britain’s 10-year yield advanced 16 basis points to 2.29%

Commodities

• West Texas Intermediate crude fell 0.4% to $86.21 a barrel
• Gold futures fell 0.7% to $1,777.60 an ounce

–With assistance from Brett Miller, Andreea Papuc, Tassia Sipahutar, Sunil Jagwani and Srinivasan Sivabalan.