US Markets Lower After Inflation Update – Dow down 0.2%
US stocks drifted lower in trading yesterday as investors digested Nvidia’s latest earnings results alongside a stronger inflation reading that lifted expectations of a potential Fed rate hike in September. The Dow Jones fell 0.21% to 53,463, while the S&P 500 slipped just 0.02% to 7,675 and the Nasdaq eased 0.08% to 26,130.
The inflation data pushed Treasury yields higher, with the 2-year yield rising 3.1 basis points to 4.209% and the 10-year yield adding 1.8 basis points to 4.647%. The move in yields also supported the US dollar, with the USD Index gaining 0.24% to 99.15 as traders continued to reassess the outlook for Fed policy.
Oil prices moved lower as markets continued to monitor developments surrounding talks between Iran and Oman and their potential implications for the Strait of Hormuz. Brent crude fell 1.26% to $87.46, while WTI declined 0.16% to $82.23.
Gold also came under pressure as the stronger dollar and higher Treasury yields weighed on the precious metal, with gold falling 1.39% to $4,592.03.
Jackson Hole in Focus for Traders in the Weekend
Investors will be watching this week’s Jackson Hole symposium closely for clues on how the Federal Reserve plans to navigate an increasingly difficult policy environment, with rising Treasury yields potentially doing some of the tightening work for the central bank.
The annual gathering has traditionally been an important venue for the Fed to signal its thinking on interest rates, but expectations are somewhat different this year as new Fed Chair Kevin Warsh prepares to deliver his first Jackson Hole speech on Friday. Warsh has moved away from the forward guidance investors had become accustomed to, instead arguing that traders and portfolio managers should pay closer attention to market signals.
That shift has left markets searching for greater clarity. Investors are particularly keen to understand how Warsh views the recent rise in Treasury yields and whether tighter financial conditions could reduce the need for the Fed to raise rates further, even as inflation remains above the central bank’s 2% target.
The key issue for markets will therefore be whether Warsh can provide a clearer roadmap for returning inflation to target. Investors will be looking for a firm commitment to the 2% inflation objective and, importantly, an indication of how the Fed would respond if price pressures remain elevated.
Adding to the uncertainty, expectations for the next rate move have become increasingly volatile. US rate futures are currently pricing around a 40% chance of a rate hike next month, up from 33% a week ago, despite weaker payrolls and signs that price growth is beginning to slow.
With the September FOMC meeting approaching, Warsh’s comments could therefore have significant implications for Treasury yields, the US dollar and equities. A hawkish message focused on persistent inflation could push yields and the dollar higher, while a more dovish assessment of the economy and financial conditions could see markets increase expectations for rate cuts.
Quieter Calendar Day Ahead for Traders
The economic calendar is considerably quieter today; however, traders are still expecting markets to remain lively. There is little of note scheduled in the Asian session, although markets are expected to start on the back foot after the late fall on Wall Street. It is a similar situation in the London session, with no significant data due out; however, the ECB Monetary Policy Meeting Accounts will be released midway through the session, which could see some volatility in the Euro. The weekly US Unemployment Claims (exp 208k) will provide the main focus during the US session. Overall, today, though, with limited top-tier economic data on the calendar, geopolitical developments are again likely to play an important role in driving market direction.
Explore all upcoming market events in the Economic Calendar.
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