(Bloomberg) — Stocks climbed after Jerome Powell’s remarks did little to alter bets on another super-sized rate hike during the Federal Reserve’s September gathering.
(Bloomberg) — Stocks climbed after Jerome Powell’s remarks did little to alter bets on another super-sized rate hike during the Federal Reserve’s September gathering.
The S&P 500 wiped out a slide that approached 1% earlier in the day as the Fed’s boss reprised his hawkish views from the Jackson Hole conference in late August, saying officials are strongly committed to their fight against inflation. The yield of the policy-sensitive two-year note jumped by almost 7 basis points to 3.499%. Swap traders priced in odds of around four-in-five that officials will implement a 75-basis-point hike on Sept. 21 instead of just 50 basis points.
Powell said the US central bank will not flinch in its efforts to curb inflation “until the job is done.” “We need to act now, forthrightly, strongly as we have been doing,” he noted Thursday in remarks at the Cato Institute’s monetary policy conference in Washington. “It is very important that inflation expectations remain anchored,” Powell said, adding that “what we hope to achieve is a period of growth below trend,” which will cause the labor market to get back into better balance.
“The Fed is keeping 75 basis points on the table for September, and the market is doubling down on the curve inversion,” said Ian Lyngen, head of US rate strategy at BMO Capital Markets. “The Fed’s rhetoric this week has raised the bar for a disappointment in the August inflation data to cement the chances of a 50 basis point hike.”
Europe’s bonds slid after the European Central Bank said it would remove a cap on how much interest government deposits can earn as it lifted rates above 0% for the first time in a decade. That reduces the incentive to shift billions of euros of public money from cash into short-term debt, driving a selloff that took the yield on two-year German bonds up much as 21 basis points to 1.31%.
Read: Bill Gross Is Long the Pound After Plunge With Dollar Overvalued
Seasoned investors, staring at a world clouded by war, inflation and economic uncertainty, are buying catastrophe insurance at a record clip. Institutional traders paid a total of $8.1 billion to initiate purchases of equity puts last week, the highest premium in at least 22 years, Options Clearing Corp. data compiled by Sundial Capital Research show. Adjusted for market capitalization, demand for hedges matches levels from the 2008 financial crisis.
US stocks could slide a further 25% if the economy tips into recession, with risks to a sustained equity rally mounting, according to Deutsche Bank AG strategists. With company profits set to drop, valuations still high and recession risks looming, the fundamental picture is challenging, strategists led by Binky Chadha wrote in a note dated Sept. 7. His base-case scenario still sees shares rising by year-end.
On the economic front, applications for US unemployment insurance fell for a fourth straight week to the lowest since May, suggesting demand for workers remains healthy despite an uncertain economic outlook. Meanwhile, Mortgage rates in the US climbed for the third week in a row, reaching the highest level since 2008 and squeezing affordability as the US housing slowdown deepens.
Among corporate highlights, GameStop Corp. jumped after the video game retailer announced a partnership with cryptocurrency exchange FTX US. Amylyx Pharmaceuticals Inc. surged as its controversial treatment for amyotrophic lateral sclerosis won the support of a panel of US regulatory advisers. Tesla Inc.’s China operations are back in full swing after an upgrade to its factory in Shanghai and a Covid-19 lockdown in the city slowed production earlier this year.
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Some of the main moves in markets:
Stocks
- The S&P 500 rose 0.7% as of 11:06 a.m. New York time
- The Nasdaq 100 rose 0.8%
- The Dow Jones Industrial Average rose 0.6%
- The Stoxx Europe 600 rose 0.6%
- The MSCI World index rose 0.8%
Currencies
- The Bloomberg Dollar Spot Index rose 0.2%
- The euro fell 0.5% to $0.9960
- The British pound fell 0.4% to $1.1489
- The Japanese yen fell 0.2% to 144.01 per dollar
Bonds
- The yield on 10-year Treasuries was little changed at 3.27%
- Germany’s 10-year yield advanced 11 basis points to 1.69%
- Britain’s 10-year yield advanced 10 basis points to 3.13%
Commodities
- West Texas Intermediate crude rose 1.8% to $83.40 a barrel
- Gold futures fell 0.5% to $1,719 an ounce
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