Stocks Rally Stalls as Consumer Sentiment Hit: Markets Wrap

By Investor Empires On Sep 24, 2024

(Bloomberg) — U.S. stocks fell after consumer confidence unexpectedly fell to a three-year low, while bonds came under pressure ahead of a Treasury auction on Tuesday.

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The S&P 500 fell 0.2% — the benchmark stock index had a record close in the previous session. The Nasdaq 100 fell 0.4% after the Conference Board’s sentiment index posted its biggest drop since August 2021, according to data released Tuesday.

Manufacturing data also came in weaker than expected. The yield on 2-year bonds fell to 3.55% after the data, which Bank of Montreal’s Ian Lyngen said was positive for the policy-sensitive maturity.

However, Lingen says: “Unless the declining confidence translates into lower consumer spending, the shift in sentiment will not become influential in monetary policy.”

Traders were waiting for further signals on the size of the Fed’s next rate cut. They raised their bets to just over three-quarters of a point of easing by the end of the year after the confidence data, suggesting at least another big rate cut is on the cards.

Fed Governor Michelle Bowman, the only policymaker to oppose a 50 basis point rate cut last week, said the central bank should cut rates at a “measured” pace, arguing that inflationary risks remain and the labor market has not shown significant weakness.

Her comments contrast with those of a number of other policymakers, including Chicago Fed President Austin Goolsbee, who have said the focus should shift to the labor market. Goolsbee said the central bank needs to cut interest rates “dramatically” to protect jobs.

U.S. bond yields were mixed ahead of a $69 billion two-year bond auction that will test investor demand today.

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The recent slide raises the possibility that buyers will eventually step in. “If unemployment spikes or consumer headwinds build, higher yields on 10- and 30-year bonds will bring in investors who have been on the sidelines,” Lingen wrote.

In individual stock moves, Visa Inc. shares fell more than 4% after a report that the U.S. Justice Department plans to file a lawsuit over its alleged monopoly on debit cards. Estée Lauder Co. shares were among those that rose after China announced a series of stimulus measures aimed at supporting economic growth. The cosmetics company generates nearly a third of its sales from Asia.

Investors are awaiting data on the Fed’s preferred gauge of prices and U.S. personal spending later this week for further clues on the depth of future cuts.

Elsewhere, risk sentiment was on the rise as stocks rose after China’s stimulus package. European stocks rose as sectors exposed to the Chinese economy rebounded. The dollar fell.

China’s sweeping stimulus package on Tuesday included cutting banks’ reserve requirements and providing liquidity support for stocks by at least 800 billion yuan ($114 billion). The country’s stock index had its best day since July 2020, with the emerging market index adding more than 1%.

However, Michael Snead, head of cross-asset and macro-quant strategy at BNP Paribas, said it would take some time before the economic impact of the stimulus was felt. “The news of Chinese stimulus may not be enough to remove those downside risks to the European economy yet,” he added.

Oil prices rose on hopes of an improvement in the Chinese economy, while a major Israeli strike on Hezbollah targets in Lebanon heightened tensions in the Middle East. Gold also hit a record high.

Main events this week:

Mexico Consumer Price Index, Tuesday
Bank of Canada Governor Tiff Macklem speaks Tuesday
Australian Consumer Price Index, Wednesday
China’s medium-term lending facility rate, Wednesday
Sweden interest rate decision, Wednesday
Swiss interest rate decision Thursday
European Central Bank President Christine Lagarde speaks Thursday
U.S. Jobless Claims, Durable Goods, Revised GDP, Thursday
Federal Reserve Chairman Jerome Powell delivers pre-recorded remarks at the 10th Annual U.S. Treasury Market Conference, Thursday.
Mexico interest rate decision, Thursday
Tokyo CPI, Friday
China’s industrial profits, Friday
Eurozone Consumer Confidence, Friday
U.S. Personal Spending Index, University of Michigan Consumer Confidence Index, Friday

Some key movements in the markets:

Stocks

The S&P 500 was down 0.2% as of 10:29 a.m. New York time.
The Nasdaq 100 fell 0.4%.
The Dow Jones Industrial Average was little changed.
The Stoxx Europe 600 index rose 0.3%.
The MSCI World Index saw little change.

Currencies

The Bloomberg Dollar Index fell 0.4%.
The euro rose 0.5% to $1.1162.
The pound rose 0.4% to $1.3397.
The Japanese yen rose 0.1% to 143.46 yen per dollar.

Cryptocurrencies

Bitcoin fell 0.7% to $62,850.65
Ether price fell 2.6% to $2,592.76

Bonds

The yield on the 10-year US Treasury note was little changed at 3.75%.
The yield on the 10-year German bond fell one basis point to 2.14%.
The yield on the 10-year British bond rose by two basis points to 3.95%.

Goods

West Texas Intermediate crude rose 1.9% to $71.74 a barrel.
Spot gold rose 0.4 percent to $2,638.63 an ounce.

This story was produced with the help of Bloomberg Automation.

–With the assistance of Mark Cudmore, Winnie Hsu, Aya Wagatsuma, Margarita Kirakosyan, and John Viljoen.