(Bloomberg) --Bonds climbed around the world as weak economic data in the US and Europe bolstered bets that major central banks will pause their interest-rate hikes to prevent a recession. Big tech led gains in stocks before Nvidia Corp.'s earnings.
Traders also weighed a US government report saying that job growth in the year through March will probably be revised down by 306,000 — a smaller adjustment than some economists expected. Treasury two-year yields were down 10 basis points, dropping below 5%, as data showed American business activity barely expanded on subdued customer demand. The 10-year German rate sank as a contraction of private-sector activity in the euro area intensified.
Another worrisome economic signal came from the US mortgage industry, with applications for home purchases tumbling to an almost three-decade low. Separate data showed new-home sales hit the highest level in over a year — as a surge in mortgage rates left many homeowners unwilling to move, keeping inventory on the resale market extremely limited.
The advance in bonds Wednesday was also attributed to short covering after a selloff that recently drove US 10-year yields to the highest since late 2007 on speculation that interest rates would remain higher for longer to curb inflation — even if the Fed decides to pause its hiking campaign.
"The recent surge in bond yields has pushed up mortgage and corporate borrowing rates, contributed to the fall in stock prices, and generated upward pressures on the dollar," said Krishna Guha, vice chairman at Evercore ISI. "The Fed will have to consider the tightening in financial conditions when setting rates in coming months, including the decision whether to hike in September."
The market is now eagerly awaiting Jerome Powell's speech Friday at the Kansas City Fed's Jackson Hole Economic Policy Symposium for clues on the outlook for policy after officials last month lifted borrowing costs to the highest level in 22 years.
Nvidia's Results
Another event that will possibly set the tone for markets is an assessment on the outlook for artificial intelligence and how that will shape stock-trader sentiment over the next few months. That's why the upcoming results from Nvidia, the company at the heart of the AI frenzy, will be so relevant.
Analysts have been raising price targets ahead of the second-quarter report, which is expected to show revenue up 65% from the same period a year ago to about $11 billion, data compiled by Bloomberg shows. According to Citigroup Inc., expectations from institutional investors are even higher, at around $12 billion. And many analysts, like HSBC's Frank Lee, say the stock has further to run — despite more than tripling this year to trade at a whopping 44 times projected profits.
Investors also sifted through a batch of earnings from retailers. Kohl's Corp. and Urban Outfitters Inc. climbed on earnings that beat estimates while Abercrombie & Fitch Co. advanced after boosting its full-year outlook. Foot Locker Inc. sank after cutting its full-year forecast and reporting results that fell short of Wall Street's expectations amid concern over weakening spending patterns.
Traders are growing more optimistic on US equities, according to Charles Schwab's Trader Sentiment Survey, which found 44% are now bullish — up from 32% in the second quarter. While 69% of Schwab's trader clients still think it's likely that the US economy will officially enter a recession, that's down from 86% in the previous quarter.
Corporate Highlights
- Peloton Interactive Inc. slumped after the fitness company gave a weak revenue forecast for the current quarter and said costs for a product recall were significantly more expensive than it anticipated.
- Grab Holdings Ltd. brought forward its profitability target after posting a narrower loss in the second quarter, buoyed by extensive cost cuts at the ride-hailing and food-delivery company. The shares rose.
- Advance Auto Parts Inc. climbed after naming a new chief executive officer and starting a strategic review of the business as it struggles to keep up with inflation.
- Mallinckrodt Plc plans to file bankruptcy for the second time in less than three years after battling business declines and struggling to keep up with payments on a $1.7 billion settlement resolving a wave of lawsuits accusing the drugmaker of fueling the US opioid epidemic.
MLIV Pulse Survey
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Key events this week
- US initial jobless claims, durable goods, Thursday
- Kansas City Fed's annual economic policy symposium in Jackson Hole begins, Thursday
- Japan Tokyo CPI, Friday
- US University of Michigan consumer sentiment, Friday
- Fed Chair Jerome Powell, ECB President Christine Lagarde to address Jackson Hole conference, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 rose 0.9% as of 10:55 a.m. New York time
- The Nasdaq 100 rose 1.5%
- The Dow Jones Industrial Average rose 0.3%
- The Stoxx Europe 600 rose 0.4%
- The MSCI World index rose 0.7%
Currencies
- The Bloomberg Dollar Spot Index fell 0.2%
- The euro was unchanged at $1.0846
- The British pound fell 0.4% to $1.2683
- The Japanese yen rose 0.8% to 144.79 per dollar
Cryptocurrencies
- Bitcoin rose 0.9% to $26,082.17
- Ether rose 1.6% to $1,656.45
Bonds
- The yield on 10-year Treasuries declined 10 basis points to 4.23%
- Germany's 10-year yield declined 12 basis points to 2.53%
- Britain's 10-year yield declined 17 basis points to 4.47%
Commodities
- West Texas Intermediate crude fell 1% to $78.81 a barrel
- Gold futures rose 1% to $1,944.90 an ounce
This story was produced with the assistance of Bloomberg Automation.
--With assistance from Brett Miller, Tassia Sipahutar, Namitha Jagadeesh, Sagarika Jaisinghani and Isabelle Lee.
© 2023 Bloomberg L.P.
