Wall Street Highlights: S&P 500, Nasdaq, Bonds Drop As Oil Spike Boosts Fed Wagers

Another rally in oil prices spurred losses in stocks and bonds, with the latest inflation data reinforcing bets the Federal Reserve will increase rates soon amid pressures from higher energy costs.

The jump in Brent crude to more than $107 lifted US yields to multi-year highs. Traders boosted wagers on a Fed hike next week to 70% and fully priced in a move by October. The market also got hit after the Treasury bought back $5.19 billion worth of debt, short of the amount it had outlined. The S&P 500 fell for a fourth straight day, the longest retreat since June.

A gauge of producer inflation showed renewed pressure from rising energy prices last month. The figures came a day ahead of the the consumer price index, which is expected to show core inflation was relatively modest even as gasoline prices boosted the headline measure.

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Some Fed officials have signaled the rate decision at their Sept. 15-16 meeting may come down to what this week's reports reveal.

"Inflation is still a problem," said Clark Bellin at Bellwether Wealth. "While interest-rate movements can't bring high oil prices down, the Fed's job is to respond to inflationary pressures."

As the Iran war keeps dragging on, inflation pressures are becoming more entrenched, said Jeffrey Roach at LPL Financial. At this rate, a Fed hike next week appears likely, he added.

While a hike isn't a "slam dunk" just yet, the Fed may be running out of road to accommodate another renewed supply shock without additional reassurance on underlying inflation, according to Krishna Guha at Evercore.

That said, his firm put its "no-Fed-hike call" under review and will update once the CPI report is released Friday.

"Inflation is a physical constraint and geopolitical problem, not a monetary problem," said Brian Jacobsen at Annex Wealth Management. "If the Fed hikes next week, it should be a symbolic hike to assert its independence and build credibility and not in the hope that it will actually fix the inflation problem."

Meantime, the European Central Bank lifted rates for the second time since the Iran war broke out, with higher oil prices prompting bets on more hikes.

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(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)

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