Updated at 10:38 am EDT
U.S. stocks were mixed in early Thursday trading, while the dollar traded at a two-month peak against its global peers and Treasury bond yields tested multi-year highs, as investors reacted to a hawkish set of minutes from the Federal Reserve’s last policy meeting as well as a weak overnight session in Asia.
Details from discussions that led to the Fed’s last rate hike, which lifted its benchmark lending rate by a quarter of a percent to between 5.25% and 5.5%, the highest in twenty-two years, suggested the need for further increases amid ‘unacceptably’ high inflation risks and a surprisingly resilient economy.
The CME Group’s FedWatch continues to suggest the Fed won’t raise rates at its next meeting in Washington, but pegs the chances of a hike in either November of December at around 35%.
That lifted the dollar index, which tracks the greenback against a basket of its global peers, to a two-month high of 103.580 in overnight trading, while powering 2-year Treasury note yields to test the 5% threshold.
The minutes, however, also said recessions risks had faded, thanks in part to a resilient job market, helping 10-year note yields test the 4.30% mark in early New York dealing, near to the highest levels in sixteens years following the Labor Department’s weekly estimate of new applications for jobless benefits.
Benchmark 30-year bonds, meanwhile, touched a 2011 high of 4.42%, a move indicative of the stronger domestic growth prospects.
Around 2390,000 people likely filed new applications for the week ending on August 12, the Bureau of Labor Statistics said, compared to economists’ forecast of 240,000, down from the revised 250,000 recorded over the prior period and just ahead of the recent four-week average of 231,000.
The BLS reported last month that average hourly earnings rose 4.4% from a year earlier, and 0.3% from June, even as the overall tally of new jobs created slowed to 187,000 the lowest since December of 2020.
“If the economic expansion stays resilient, solid wage growth continues, and recent increases in house prices persist, it’s easy to see the Fed using them to justify a last quarter percentage point hike of the cycle then,” said Bill Adams, Chief Economist for Comerica Bank in Dallas.
“On the other hand, a broader-based slowdown of total and core inflation, along with an uptick in the unemployment rate and cooler wage growth, would probably be enough for the Fed to declare mission accomplished,” he added.
Further weakness in Asia, where concerns for the downturn in China are now focused on the bank and wealth management sectors, helped push the MSCI ex-Japan benchmark to a nine-month low in overnight dealing, while one of the weakest bond auctions in Japan in more than three decades pushed the yen to a nine-month low against the dollar and revived concerns for intervention by the Ministry of Finance.
On Wall Street, where stocks closed at a five-week low last night amid both unusually heavy volume of 11.9 billion shares, traders headed into the Thursday session with caution ahead of weekly jobless claims data and details from the Philadelphia Fed’s manufacturing and business activity index at 8:30 am Eastern time.
The S&P 500, which closed below its 50-day moving average earlier this week and is down 4.02% for the month, was marked 1 point lower in the opening hour of trading while the Dow Jones Industrial Average gained 50 points. The tech-focused Nasdaq was down 70 points.
Walmart (WMT) – Get Free Report shares were a notable early mover, falling 1% to $157.66 each, after the retail giant blasted second quarter earnings forecasts and boosted its full-year profit outlook.
Another Dow component, Cisco Systems (CSCO) – Get Free Report, was marked 4.6% higher after the network equipment chipmaker posted better-than-expected fourth quarter earnings and touted its potential in leveraging AI technologies.
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