Stocks Drop, US Yields Top 4% As Rate-Cut Bets Ebb: Markets Wrap

Stocks fell and key Treasury bond yields rose back above 4% after robust US data undercut wagers on a big interest-rate reduction next month from the Federal Reserve.

Contracts on the S&P 500 shed 0.4% while Nasdaq 100 futures fell 0.5%. Ten-year US Treasury borrowing costs topped 4% for the first time since August, extending gains from Friday, when the monthly US jobs number blew past expectations. Swaps markets have moved to pricing less than a quarter-point rate cut next month, having expected a 50 basis-point move until recently.

The shifting rate expectations are likely to weigh on equity markets, which have rallied to record highs recently amid signs of a robust US economy, easing inflation and big rate cuts. In addition, crude oil prices pushed higher to approach $80 a barrel, as investors await Israel’s response to the recent Iranian missile strike.

Marija Veitmane, head of equity strategy at State Street Global Markets, said she still remains constructive on the equity outlook as economies remain resilient and inflation is easing. However, “we have to be a bit careful in terms of drivers, as we will probably not get a lot of big aggressive rate cuts,” Veitmane said on Bloomberg TV.

Investors are now looking ahead to the US inflation data due Thursday, with economists surveyed by Bloomberg expecting year-on-year price growth at 2.3%, a slight slowdown from the previous reading. The earnings season also kicks off this week with reports from big US banks. Earnings growth is seen robust though it’s expected to slow from the second quarter.

Among individual stocks, Pfizer Inc. climbed more than 2% in US premarket trading, after Bloomberg reported activist investor Starboard Value had taken a stake of about $1 billion in the firm. Arcadium Lithium Plc. leapt 29% on news Rio Tinto Plc had made a non-binding takeover approach.

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Europe’s Stoxx 600 equity index edged higher, while bond yields rose across the continent. The biggest stock movers were Heidelberg Materials AG, which benefited from a report that the Adani Group has started talks to buy the company’s Indian cement operations, and luxury-goods firm Richemont, which rose after an announcement it would sell the online retailer YNAP to Mytheresa.

Here are some key events this week:

Euro-area finance ministers meet in Luxembourg on Monday. ECB President Christine Lagarde will participate
Minneapolis Fed President Neel Kashkari, Atlanta Fed President Raphael Bostic, St. Louis Fed President Alberto Musalem and Fed Board member Michele Bowman speak at different events on Monday as investors listen for any clues to policymakers’ thinking ahead of next month’s meeting
Brazil and Mexico publish CPI data, New Zealand, Israel and India hold interest rate decisions
US CPI for September, the final inflation print before the presidential election, is due Thursday
President Biden embarks on a trip to Germany and Angola, through Oct. 15, his first trip abroad since withdrawing from the presidential race, on Thursday
New York Fed President John Williams gives keynote remarks at Binghamton University in New York. Richmond Fed President Thomas Barkin speaks in a fireside chat on the economic outlook on Thursday

Some of the main moves in markets:

Stocks