Tech fuel stocks rise as earnings sentiment boost: Markets wrap

(Bloomberg) – US stocks rose as corporate earnings continued to emerge and economic data came out better than expected. Treasuries fell after hawkish comments from Federal Reserve officials made it clear that pivotal policy is unlikely.

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Earnings set the tone for stocks, with strong reports from PayPal Holdings Inc. and Moderna Inc. It lifted the Nasdaq 100 Index by 2% and the S&P 500 Index by 1.1%. While the tech-heavy index rose to a three-month high, the S&P 500 touched a level last seen in June. The latest data also eased fears of a broader economic slowdown as growth in the US service sector unexpectedly boosted to a three-month high in July.

The 10-year Treasury yield edged up around 2.8% as the swap markets showed that traders are now pricing in a 50% chance of a three-quarter percentage point rate hike in September. The 10-year rate is down around 2.5% with the rate hike expected to be smaller.

Bonds continued to sell off as investors readjusted their expectations for the path of an interest rate hike by the Federal Reserve. Treasuries surged last week after President Jerome Powell indicated that the pace of future increases may slow later this year, boosting the prospects for cuts next year in implied market actions. Since then, several Fed officials have said the central bank is not yet done tightening and is still laser-focused on capping price gains that are the hottest in four decades.

“If there is a change in the tone of Fed members, it is similar to a father finally telling his children that you have had enough candy, no more,” wrote Peter Bokfar, chief investment officer at Bleakley Financial Group. “For decades, the Fed has always been giving more candy to the markets, especially when kids cried for it. Now, kids will have to dispense with them as long as inflation is at levels not very satisfactory as it is, even with the expected decline.”

Markets also became somewhat calmer after US-China tensions when House Speaker Nancy Pelosi left Taiwan. Her visit sparked an angry response from China, and markets were on edge before her arrival on Tuesday.

US stocks rose after a session that saw many twists and turns on Tuesday. But stock trading does not reflect the headwinds facing the market, according to Goldman Sachs Group strategist Sharon Bell.

“There’s a little bit of complacency out there and the markets aren’t fully taking risks,” Bell said in an interview with Bloomberg TV.

Poor liquidity during the summer lull also tends to amplify small market moves, said April Lars, chief investment specialist at Insight Investments.

“Sometimes that can make it sound more exciting than it probably is when you think about the volumes that happen,” she said.

The Cboe VIX indicator also shows that price swings are usually prevalent in the summer and early fall. August and September are historically the worst months for the S&P 500 Index.

Oil fell after a short rally as traders pondered the lack of relief for the oil markets and the weak demand outlook. The dollar jumped to its highest level in a week.

Fed signals

Comments from Federal Reserve officials including Mary Daly, Loretta Mester, Charles Evans and James Bullard served to highlight the challenging background of rising borrowing costs, price pressures and slowing economic growth.

San Francisco Fed President Daly said the Fed has “a long way to go” to reach price stability around the 2% inflation target. Its counterpart in Cleveland, Meester, said it wanted to see “very convincing evidence” that month-to-month price increases are moderate.

Louis Fed President Bullard said in an interview with CNBC on Wednesday that there must be “compelling evidence” that inflation is easing before policymakers can “feel that we’re doing enough.”

This week’s MLIV Pulse survey asks about your expectations for corporate bonds, mergers and acquisitions, and the health of US corporate balance sheets through the end of the year. It takes 1 minute to participate in the MLIV Pulse survey, so please click here to participate anonymously.

What you will watch this week:

  • US Factory Orders, Durable Goods, ISM Services, Wednesday

  • Bank of England interest rate decision, Thursday

  • US Initial Jobless Claims, Trade, Thursday

  • Cleveland Fed President Loretta Meester is scheduled to speak, Thursday

  • US employment report for July, Friday

Some of the main movements in the markets:

Stores

  • The S&P 500 was up 1% as of 11:23 a.m. New York time

  • The Nasdaq 100 is up 2%.

  • The Dow Jones Industrial Average rose 0.9%

  • The Stoxx Europe 600 Index is up 0.4%

  • The MSCI World Index fell 0.8%

coins

  • Bloomberg spot dollar index rose 0.3%.

  • The euro fell 0.3 percent to $ 1.0138

  • The British pound fell 0.4 percent to 1.2117 dollars

  • The Japanese yen fell 0.8 percent to 134.27 per dollar

bonds

  • The yield on the 10-year Treasury bond advanced five basis points to 2.80%.

  • The German 10-year bond yield advanced six basis points to 0.88%.

  • The UK 10-year bond yield advances six basis points to 1.93%.

goods

  • West Texas Intermediate crude fell 2.4 percent to $92.19 a barrel

  • Gold futures fell 0.9 percent to $1,773 an ounce

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