Stocks Trade Well Off Lows as Dollar Pushes Higher: Markets Wrap

(Bloomberg) -- Stocks pared losses as comments from a Federal Reserve official brought some relief to investors worried about an even more aggressive pace of rate hikes plunging the economy into a recession.

The S&P 500 rebounded from session lows after Fed Governor Christopher Waller’s remarks that he would back a 75-basis-point hike in July, but could vote for more if data show further inflation risks. The tech-heavy Nasdaq 100 outperformed. Treasury two-year yields reversed their advance.

“The Fed keeps telling us that they are much more focused on inflation than growth,” wrote Matt Maley, chief market strategist at Miller Tabak. “It will take a lot more than a further slowing in growth to cause the Fed to change their policy in the kind of way that will create a good buying opportunity for a stock market that is still expensive.”

Traders got another reality check Thursday, with JPMorgan Chase & Co. temporarily halting buybacks as earnings fell short of estimates, and Morgan Stanley announcing a plunge in investment-banking revenues. Still, the chiefs of both banks said they aren’t steering their firms toward shelter even as they see a confluence of global events denting the economy in the months ahead.

Read: Fed’s Collins Says Addressing Too-High Inflation Is Key Priority

A key measure of US wholesale and business prices jumped by more than forecast, though some signs of cooling inflationary pressures began to emerge. Over the last several weeks, measures of food, raw industrial materials and oil fell sharply. Nonetheless, it may take months before inflation moderates at the household level. 

Mortgage rates in the US rose, resuming an upward climb that threatens to further cool the housing market. The average for a 30-year loan jumped to 5.51% from 5.3% last week, Freddie Mac said in a statement Thursday. It’s up from 3.11% at the end of last year.

Shrinking the Fed’s $8.9 trillion balance sheet will have an effect over time equivalent to no more than three quarter-point interest-rate hikes, according to a new study by a Fed Bank of Atlanta economist. That suggests the asset reductions will have a relative modest effect compared to rate hikes to counter inflation.

“We remain skeptical that the Fed can pull off simultaneously normalizing its balance sheet, controlling inflation, and avoiding severe market disruptions,” said Richard Saperstein, chief investment officer at Treasury Partners. “We’re increasingly concerned that investors may be forced to endure more downside volatility in this tricky environment.”

Elsewhere, cryptocurrency lender Celsius Network Ltd. filed for Chapter 11 bankruptcy, but Bitcoin took the news in stride. The digital token may be regaining its long-touted appeal as an inflation hedge.

Read: SEC Weighs Waiving Some Rules to Regulate Crypto, Gensler Says

What to watch this week:

• China GDP, Friday
• US business inventories, industrial production, University of Michigan consumer sentiment, Empire manufacturing, retail sales, Friday
• G-20 finance ministers, central bankers meet in Bali, from Friday
• Atlanta Fed President Raphael Bostic speaks, Friday

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Some of the main moves in markets:

Stocks

• The S&P 500 fell 1.2% as of 1:35 p.m. New York time
• The Nasdaq 100 fell 0.6%
• The Dow Jones Industrial Average fell 1.3%
• The MSCI World index fell 1.4%

Currencies

• The Bloomberg Dollar Spot Index rose 0.7%
• The euro fell 0.6% to $1.0003
• The British pound fell 0.8% to $1.1789
• The Japanese yen fell 1.1% to 138.91 per dollar

Bonds

• The yield on 10-year Treasuries advanced three basis points to 2.97%
• Germany’s 10-year yield advanced three basis points to 1.18%
• Britain’s 10-year yield advanced four basis points to 2.10%

Commodities

• West Texas Intermediate crude fell 1.3% to $95.05 a barrel
• Gold futures fell 1.6% to $1,706.90 an ounce

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