Treasuries Decline On Fedspeak; Stocks Post Gains: Market Wrap

(Bloomberg) -- Treasuries started the week with losses after remarks from a Federal Reserve official signaled interest rates could remain higher for longer to tame inflation pressures.

Ten-year US yields resumed their advance, the dollar fluctuated and the S&P 500 rebounded from its worst weekly slide since March. The Dow Jones Industrial Average added about 1%, while the Nasdaq 100 underperformed. Tesla Inc. retreated after saying its chief financial officer stepped down, a surprise shakeup at the electric-vehicle giant. Apple Inc. was set for its longest losing streak this year.

Fed Governor Michelle Bowman said she expects “additional increases will likely be needed.” Meantime, Fed Bank of New York President John Williams cited the need to keep policy restrictive “for some time” while noting rate cuts may be warranted next year if inflation slows. The US consumer price index due later this week could stoke more volatility.

“It's important for investors to remain vigilant and not become complacent as the market's inflation and Federal Reserve fears remain intact,” said Ryan Belanger, founder and managing principal at Claro Advisors. “Gasoline prices have been rising in recent weeks and Thursday's CPI report may reflect that, which would boost the Fed's arguments for remaining aggressive with policy.”

Hedge funds ramped up their bearish Treasury bets to a record last week just as yields surged toward multi-month highs, while more traditional investors were burnt having boosted wagers in the opposite direction with similar conviction. 

Leveraged fund increased net-short positions of longer-maturity Treasuries derivatives to the most since figures going back to 2010, according to an aggregate of Commodity Futures Trading Commission data for the week to Aug. 1. Asset managers took opposite bets, taking their own net-bullish positions to an all-time high.

Morgan Stanley's Michael Wilson said that Fitch Ratings' downgrade of US government debt last week and the ensuing selloff in the bond market suggests that “investors should be ready for potential disappointment” on economic and earnings growth.

A clear majority of investors expect a US recession before 2024 is out, leading them to view the current bull market in stocks as ephemeral and to favor long-term US Treasuries. That's the takeaway from the latest Markets Live Pulse survey, which showed that roughly two-thirds of the 410 respondents anticipate a downturn in the world's biggest economy by the end of next year.

Corporate Highlights:

• Berkshire Hathaway Inc. rose after posting gains in operating profit as strength in its insurance businesses helped counter inflationary pressures that have weighed on the sprawling conglomerate in the last year.
• Campbell Soup Co. agreed to buy Sovos Brands Inc. in a deal valued at $2.7 billion, expanding the soupmaker's presence in frozen meals and giving it a foothold in the pasta sauce market.
• Tyson Foods Inc. declined as it will shut down four additional chicken facilities after fiscal third-quarter sales trailed even the lowest of analyst estimates.
• Yellow Corp. fell as it filed for bankruptcy and will remain shuttered after the trucking firm's long-running financial woes were compounded by a dispute with its labor force.
• Sage Therapeutics Inc. dropped after regulators granted approval to its fast-acting pill only for postpartum depression, denying the drug clearance for major depressive disorder.

Elsewhere, wheat rose after Ukraine used sea drones to cripple a Russian naval vessel and an oil tanker over the weekend, posing a risk for a key export route for Russian commodities through the Black Sea. West Texas Intermediate traded near $82 a barrel at the start of the week after rising more than 4% over the previous two sessions.

Key events this week:

• Japan household spending, Tuesday
• US wholesale inventories, trade, Tuesday
• Philadelphia Fed President Patrick Harker speaks, Tuesday
• China CPI, PPI, money supply, new yuan loans and aggregate financing, Wednesday
• India rate decision, Thursday
• US initial jobless claims, CPI, Thursday
• Atlanta Fed President Raphael Bostic pre-recorded remarks for employment webinar, Thursday
• UK industrial production, GDP, Friday
• US University of Michigan consumer sentiment, PPI, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 rose 0.6% as of 12:38 p.m. New York time
• The Nasdaq 100 rose 0.3%
• The Dow Jones Industrial Average rose 1%
• The MSCI World index rose 0.3%

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro was little changed at $1.0996
• The British pound rose 0.2% to $1.2769
• The Japanese yen fell 0.5% to 142.53 per dollar

Cryptocurrencies

• Bitcoin fell 0.9% to $28,822.23
• Ether fell 1.1% to $1,809.88

Bonds

• The yield on 10-year Treasuries advanced six basis points to 4.09%
• Germany's 10-year yield advanced four basis points to 2.60%
• Britain's 10-year yield advanced eight basis points to 4.46%

Commodities

• West Texas Intermediate crude fell 1% to $81.96 a barrel
• Gold futures fell 0.3% to $1,969.20 an ounce

This story was produced with the assistance of Bloomberg Automation.

--With assistance from Brett Miller, Tassia Sipahutar, Cecile Gutscher, Vildana Hajric and Isabelle Lee.

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