Stocks Trim Drop as Oil Giants Rally on OPEC+ Day: Markets Wrap

Stocks Trim Drop as Oil Giants Rally on OPEC+ Day: Markets Wrap


(Bloomberg) — A rally in energy giants pushed the broader equity market away from its session lows, with the group joining gains in oil after OPEC+’s large production cut. Traders also weighed fresh economic data and Fedspeak.

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The S&P 500 trimmed a slide that reached almost 2% earlier in the day amid a surge in companies including Schlumberger, Exxon Mobil and Halliburton. Treasury 10-year yields surged as much as 15 basis points to almost 3.8%. The dollar halted a two-day slide, climbing against all of its Group-of-10 peers.

Investors got fresh economic insights Wednesday, with data showing strong growth at US service providers and companies hiring at a solid clip. They also assessed comments from Federal Reserve Bank of San Francisco President Mary Daly, who sees a high bar for slowing the 75-basis-point pace of hikes as she watches data between now and the November meeting. Daly also said the anticipation of cuts next year is misplaced.

To Win Thin at Brown Brothers Harriman, the notion of any Fed pivot is just “wishful thinking” as Fed officials remain hawkish. He says another 75-basis-point hike next month is a “done deal.” The Fed has raised rates by three-quarters of a percentage point for three consecutive meetings and has signaled another 125 basis points of increases at its remaining two gatherings this year.

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“Over the last few sessions, the market was too quick price in the ‘peak rate’ story in markets,” said Bipan Rai, head of North America currency strategy at CIBC. “Price pressures are set to remain sticky for some time and while the Fed might be closer to smaller incremental hikes than not, playing this via a ‘peak rate’ view is fairly dicey.”

All eyes will now be on the government’s payrolls report Friday that’s forecast to show another month of robust job creation and the unemployment rate holding near a 50-year low. To Charlie McElligot at Nomura Securities, Wednesday’s ADP employment print helped mitigate some of that “dovish vibe” that followed data showing a slide in US job openings, which lent credibility to the idea that the labor market could be moderating.

As the Fed intensifies its inflation fight, a report released Wednesday illustrated the abrupt swing in borrowing costs. US mortgage rates jumped to a 16-year high of 6.75%, marking the seventh-straight weekly increase and spurring the worst slump in home loan applications since the depths of the pandemic.

If history is any guide, “markets will need to experience more stress” before a pivot in monetary policy and an equity bottom, Wells Fargo & Co. strategists led by Christopher Harvey wrote. The Cboe Volatility Index is still trading below 40 — a threshold that in the past signaled a shift to monetary easing.

US stocks just posted a rare streak of quarterly declines and are in a bear market, but Citigroup Inc. quantitative strategists say they’re only just starting to reflect the risks of a recession. A team led by Hong Li said equities could come under further pressure as they continue to be “heavily driven” by heightened bond market volatility as well as concerns around persistent inflation and hawkish Fed.

There’s “more downside risk for the market and the earnings season,” they wrote.

Retail investors, who helped push stocks to all-time highs, are now trying a different tactic: Betting against the market.

From January to August this year, even before the most recent slump in stocks, the number of newly opened short positions on trading platform eToro was 61% higher than in 2021 and 41% higher than in 2020. Meanwhile, some of the biggest US exchange-traded funds that bet against popular indexes are raking in record amounts of cash.

Investors’ uncertainty toward the health of US companies is rising — and their leaders haven’t done much to help. The lack of an accurate road map for the crucial earnings season is setting the stage for a slew of potential surprises when the reporting season kicks off in coming weeks.

Aside from those few providing cold, hard numbers, executives at the 1,000 largest US firms have spent the past three months voicing a similar message in their public remarks: They’re unsure about what’s ahead. They’ve mentioned “uncertainty” or its synonyms when describing the outlook 484 times during that time, the highest tally since the quarter ending March 2021, data compiled by Bloomberg show.

Elsewhere, oil rallied as a potential output cut from Russia in response to price caps exacerbated the already tight supply outlook from the OPEC+ reduction. West Texas Intermediate futures hovered near $88 after members of the producer group agreed to cut as much as 2 million barrels a day from current output limits.

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Key events this week:

  • Eurozone retail sales, Thursday

  • US initial jobless claims, Thursday

  • Fed’s Charles Evans, Lisa Cook, Loretta Mester speak at events, Thursday

  • US unemployment, wholesale inventories, nonfarm payrolls, Friday

  • BOE Deputy Governor Dave Ramsden speaks at event, Friday

  • Fed’s John Williams speaks at event, Friday

Will earnings disappoint and push equities to new lows? This week’s MLIV Pulse survey asks about corporate earnings. It’s brief and we don’t collect your name or any contact information. Please click here to share your views.

Some of the main moves in markets:

Stocks

  • The S&P 500 fell 0.5% as of 12:50 p.m. New York time

  • The Nasdaq 100 fell 0.7%

  • The Dow Jones Industrial Average fell 0.3%

  • The MSCI World index fell 0.4%

Currencies

  • The Bloomberg Dollar Spot Index rose 0.8%

  • The euro fell 1.2% to $0.9869

  • The British pound fell 1.5% to $1.1304

  • The Japanese yen fell 0.4% to 144.73 per dollar

Cryptocurrencies

  • Bitcoin fell 0.5% to $20,229.22

  • Ether fell 0.6% to $1,353.14

Bonds

  • The yield on 10-year Treasuries advanced 14 basis points to 3.77%

  • Germany’s 10-year yield advanced 16 basis points to 2.03%

  • Britain’s 10-year yield advanced 16 basis points to 4.04%

Commodities

  • West Texas Intermediate crude rose 1.4% to $87.75 a barrel

  • Gold futures fell 0.7% to $1,718.60 an ounce

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