Stocks and bonds remain down after Fed beige book: markets fall

(Bloomberg) — A decline in bonds led stocks lower as another weak sell-off in Treasuries raised concerns about a supply surge that could continue to push yields higher at a time when the Federal Reserve is in no rush to cut rates.

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Traders also looked at the Fed’s latest Beige Book survey of regional business contacts, which indicates that economic activity has been expanding – and most districts have seen slight growth. The report also said prices rose at a modest pace, while employment increased slightly.

Federal Reserve Beige Book Summary (text)

The United States sold $44 billion worth of seven-year notes at a yield of 4.650%, above the pre-auction level of 4.637%. It comes just a day after two other U.S. offerings totaling $139 billion saw lukewarm demand. These bond sales are exerting growing influence across several asset classes, underscoring how uncertainties over Fed policy continue to weigh on markets while inflation shows few signs of moderation.

“Similar to yesterday’s poor 5-year auction, today’s 7-year auction was also weak and after a poor 2-year auction,” Peter Boockvar told the Boock Report.

Yields on the 10-year Treasury rose six basis points to 4.61%. The dollar gained against all its developed market peers.

The S&P 500 fell below 5,300. American Airlines Group Inc. fell on a disappointing outlook. UnitedHealth Group Inc. led the sector’s losses after saying it sees “disruption” coming as states reduce enrollment in their Medicaid programs. Marathon Oil Corp. surged when ConocoPhillips agreed to acquire it in a $17 billion deal. The BHP group has abandoned its bid for Anglo American Plc.

“Not only are yields rising again in the United States, but they are also rising in other parts of the world,” said Matt Maley of Miller Tabak + Co. “This is not good news for a stock market that is trades at 22 times forward earnings.”

European bond issues this year surpassed the 1 trillion euro ($1.1 trillion) mark more than a week before the previous record. German bond yields rose to a six-month high as inflation accelerated. Australia’s latest inflation figures suggest rates will remain high for now.

Fed Chairman Jerome Powell and his colleagues have stressed the need for more evidence that inflation is on a sustained path toward their 2% target before cutting the benchmark interest rate, which is at its highest level in two decades since July.

“We continue to think US sovereign yields are likely to end the year lower as inflation and economic growth slow and the Fed cuts rates in the final months of the year,” Solita Marcelli said. of UBS Global Wealth Management.

At the same time, the options market is betting that the S&P 500 will see moderate swings after this week’s bond auctions and the Fed’s preferred underlying inflation gauge on Friday, with traders instead awaiting next month on consumer prices and the next meeting of the central bank.

The benchmark equity indicator is expected to move by just 0.5% in both directions following changes in personal consumption…

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