NEW YORK: Stocks joined bonds lower as a rally in oil prices stoked worries about inflationary pressures, which were further reinforced by data showing jump in US business activity at the fastest pace since 2021.
The decline in equities sent the S&P 500 down from near-record levels.
Brent crude settled around US$103, fuelling bets the Federal Reserve will keep boosting interest rates.
A selloff in Treasuries deepened after a weak US$70 billion sale of five-year notes that drove yields on most maturities to almost two-decade highs. The dollar climbed against all major currencies.
Both manufacturing and services saw a pickup in new orders and output this month, raising concern that activity has moved from resilient to overheating. An economy strong enough to survive hikes is different than one that is so strong, it’s adding to price pressures, according to Will Compernolle at FHN Financial.
"The former gives the Fed permission to focus on inflation without significant worry of labor-market deterioration,” he said. "The latter necessitates a more aggressive and urgent approach to tightening.”
The central bank last week raised rates to tame stubborn price pressures. Fed Governor Michael Barr said Wednesday that further tightening is likely needed to return inflation to the target. Money markets fully reflect three hikes over the next year, with significant hedging for a fourth increase.
"This is the market telling us we’ve entered a genuine re-tightening cycle,” said Tony Miano at Wells Fargo Investment Institute. "The entire curve is repricing at once, which means higher discount rates for equities, higher mortgage and corporate borrowing costs, and a higher bar for risk assets.”
The Treasury said it will purchase up to US$6 billion of longer-dated government debt on Thursday, in line with the first such operation under Secretary Scott Bessent’s expanded program to stem the recent rise in borrowing costs.
Traders also monitored the latest geopolitical developments. Iran President Masoud Pezeshkian said his country won’t allow freedom of navigation through the Strait of Hormuz while sanctions and a US blockade remain in place, underscoring the difficulty in reaching a peace deal despite efforts to revive talks.
The Trump administration is working with refiners to voluntarily curb their exports of US diesel as an alternative to an outright ban on sending the fuel abroad, Energy Secretary Chris Wright said Wednesday.
Wall Street is also gearing up for a summit between President Donald Trump and his Chinese counterpart Xi Jinping in Washington, with talks set for Thursday and a dinner that will bring together a robust gathering of US corporate leaders. Trump told reporters last week that he expected to notch "a lot of different deals” during the event. — Bloomberg
