The author argues that the dramatic recent increase in oil prices affects oil-importing countries directly and will feed into all other prices through rising input and transport costs. (Image: Adobe Stock) Treasury yields pushed higher across the board, with the the policy-sensitive two-year yield up seven basis points at 3.86%.
The latest reports painted a mixed picture for the economy. Applications for US unemployment insurance fell for a fifth straight week, suggesting demand for workers remains healthy. Retail sales unexpectedly rose in August, but the data showed heavy downside revisions to the prior month’s number. Other data showed factory production rose slightly in August while total industrial production, including mining and utilities, fell.
The reports came after Tuesday’s consumer inflation jolt saw wagers for rate increases ratchet higher and stocks slump the most in two years. Swaps traders are currently pricing in a 75 basis point hike when the Fed meets next week, with some wagers appearing for a full-point move.
“Data in hand mean the Fed is most likely to raise the fed funds target three-quarters of a percent at its decision next week,” said Bill Adams, chief economist at Comerica Bank. “A hike of a full percentage point is the month’s dark horse candidate.”
The continued rise in rate-sensitive Treasuries deepened the curve inversion -- a harbinger for a looming recession -- to a level unseen in more than two decades. Mortgage rates in the US topped 6% for the first time in nearly 14 years.
“This is a market waiting for the next catalyst,” Fiona Cincotta, senior financial markets analyst at City Index, said by phone. “What we saw in the selloff on Tuesday is the repricing of expectations of the Fed. Until we really hear form the Fed we are not going to get a very clear direction.”
Asian currencies remained at risk from a strong greenback. The offshore yuan weakened past 7 per dollar for the first time since July 2020. The yen declined to trade around 143.6 per dollar after it rallied away from just under the closely-watched 145 level Wednesday on signs the Bank of Japan was preparing an intervention.
Oil declined as traders grappled with concerns about global demand and assessed comments from the US on refilling strategic reserves. Natural gas futures sold off in US trading after railroads and unions reached a tentative deal to avert a strike that threatened to disrupt domestic coal deliveries. Gold fell.
What’s your dollar bet ahead of the Fed decision? This week’s MLIV Pulse survey asks about the best trades ahead of the FOMC meeting. Please click here to share your views anonymously.
Here are some key events to watch this week:
- China home sales, retail sales, industrial production, fixed assets, surveyed jobless rate, Friday
- Euro area CPI, Friday
- US University of Michigan consumer sentiment, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 fell 0.7% as of 11:37 a.m. New York time
- The Nasdaq 100 fell 1.3%
- The Dow Jones Industrial Average fell 0.2%
- The Stoxx Europe 600 fell 0.7%
- The MSCI World index fell 0.6%
Currencies
- The Bloomberg Dollar Spot Index rose 0.2%
- The euro rose 0.1% to $0.9994
- The British pound fell 0.4% to $1.1488
- The Japanese yen fell 0.3% to 143.50 per dollar
Bonds
- The yield on 10-year Treasuries advanced six basis points to 3.46%
- Germany’s 10-year yield advanced four basis points to 1.76%
- Britain’s 10-year yield advanced three basis points to 3.17%
Commodities
- West Texas Intermediate crude fell 3.3% to $85.52 a barrel
- Gold futures fell 1.8% to $1,677.60 an ounce