Stocks Rally Stalls as Consumer Sentiment Hit: Markets Wrap

(Bloomberg) -- US stocks dipped after consumer confidence unexpectedly fell the most in three years, while bonds were under pressure ahead of a Treasury auction Tuesday. 

The S&P 500 Index slid 0.2% — the equities benchmark had set a closing record in the prior session. The Nasdaq 100 gauge edged down  0.4% after the Conference Board’s gauge of sentiment posted the biggest drop since August 2021, data out Tuesday showed. 

Manufacturing data also came in weaker than expected. Two-year yields fell to 3.55% after the data which BMO’s Ian Lyngen said was positive for the policy-sensitive maturity.

Still, “unless and until flagging confidence translates into lower consumer spending, the shift in sentiment won’t become a monetary policy influence,” according to Lyngen. 

Traders have been waiting on further signals of how big the Federal Reserve’s next interest-rate cut will be. They upped their wagers to a little over three-quarters of a point of policy easing by year-end after the confidence data, suggesting at least one more major rate cut is in store.

Fed Governor Michelle Bowman, the only policymaker to dissent on last week’s 50-basis point cut, said the central bank should lower interest rates at a “measured” pace, arguing that inflationary risks remain and that the labor market has not shown significant weakening. 

Her comments stand in contrast to a handful of other policymakers, including Chicago Fed President Austan Goolsbee, that have said the focus needs to shift to the labor market. Goolsbee said the central bank needed to cut rates “significantly” to protect jobs.

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

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Recent bearishness raises the prospect of dip buyers eventually stepping in. “In the event there is a spike in unemployment or mounting headwinds to consumption, the grind higher in 10- and 30-year yields will bring in otherwise sidelined investors,” Lyngen wrote.

In individual stock moves, Visa Inc. slumped more than 4% after a report that the US Justice Department plans to file a lawsuit over its alleged monopoly on debit cards. Estee Lauder Cos was among equities rallying after China announced a slew of stimulus aimed at shoring up economic growth. The beauty company generates nearly a third of its sales from Asia.

Investors are awaiting data on the Fed’s preferred price metric and US personal spending later this week for further clues on the depth of future reductions.

Elsewhere, the mood was risk-on as equities climbed after China’s slew of stimulus. European stock gauges traded higher as sectors exposed to the Chinese economy rallied. The dollar slumped.

China’s broad package of monetary stimulus on Tuesday included reduced reserve requirements for banks and at least 800 billion yuan ($114 billion) of liquidity support for stocks. A gauge of the nation’s stocks had its best day since July 2020 and the emerging-market equities index added more than than 1%.

Still, Michael Sneyd, head of cross-asset and macro quantitative strategy at BNP Paribas, said it would take time for the economic impact of stimulus to feed through. “That China stimulus news is probably not enough to take off those downside risks in the European economy just yet.”

Oil prices climbed on hopes of a stronger Chinese economy and as a major Israeli strike on Hezbollah targets in Lebanon kept tensions high in the Middle East. Gold hit a record.

Key events this week: 

Some of the main moves in markets: 

Stocks

Currencies

Cryptocurrencies

Bonds

Commodities

This story was produced with the assistance of Bloomberg Automation.

--With assistance from Mark Cudmore, Winnie Hsu, Aya Wagatsuma, Margaryta Kirakosian and John Viljoen.

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