Stocks Erase Drop in Choppy Trade; Treasuries Gain: Markets Wrap

(Bloomberg) -- US stocks erased declines as investors assessed the latest economic data against the outlook for interest-rate hikes. Treasury yields were lower across the board, while the dollar ticked higher.

The S&P 500 edged higher with the tech-heavy Nasdaq 100 also erasing losses. Treasuries gained, with two-year rate, the most sensitive to changes in interest rates, slipping seven basis points.

Signs of strength in demand for labor came from the weekly US jobless claims data falling for the first time in three weeks, while a gauge of manufacturing activity in the Philadelphia area unexpectedly expanded in August for the first time in three months, though a measure for business conditions six months out remained weak. 

The Federal Reserve may need to take its key rate a little above 3% by year-end, said San Francisco Fed President Mary Daly. 

Read more: Fed’s Daly Pushes Back Against Bets on Rate Cuts Next Year

In corporate news, Cisco Systems rose after issuing an upbeat forecast for quarterly sales as chip-supply shortages ease and the company is able to fill more orders. Bed Bath & Beyond plunged after Ryan Cohen’s RC Ventures said it might sell as much as 7.78 million shares in the retailer. Kohl’s dropped after the department store operator slashed its full-year earnings and sales guidance for the second straight quarter as inflation suppresses demand.

Sentiment remained fragile after the Fed minutes Wednesday signaled inflation-busting rate hikes will continue despite a weakening economy. While policy makers warned against over-tightening and signaled the potential for slower rate increases at some point, they also flagged the risk of inflation pressures becoming entrenched. Further clues for policy makers’ views may come at the Fed’s annual symposium in Jackson Hole, Wyoming next week.

“People are a little overly optimistic about how likely it is that we can solve the inflation problem quickly and in a way where we don’t have to include more policy and more rising rates,” Kathryn Kaminski, AlphaSimplex Group chief research strategist and portfolio manager, said on Bloomberg Television.

Crude oil rose as bullish signals from the US and the OPEC grouping of producers outweighed signs of economic slowdown. West Texas Intermediate futures traded above $89 a barrel.

In emerging markets, Turkey unexpectedly cut interest rates in a doubling down of unorthodox monetary policy. The lira weakened past 18 per dollar.

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:

• 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 was little changed as of 10:43 a.m. New York time
• The Nasdaq 100 rose 0.2%
• The Dow Jones Industrial Average fell 0.2%
• The Stoxx Europe 600 rose 0.3%
• The MSCI World index was little changed

Currencies

• The Bloomberg Dollar Spot Index rose 0.3%
• The euro fell 0.5% to $1.0127
• The British pound fell 0.3% to $1.2009
• The Japanese yen was little changed at 135.12 per dollar

Bonds

• The yield on 10-year Treasuries declined five basis points to 2.85%
• Germany’s 10-year yield advanced one basis point to 1.10%
• Britain’s 10-year yield advanced three basis points to 2.32%

Commodities

• West Texas Intermediate crude rose 2.5% to $90.30 a barrel
• Gold futures were little changed

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