US Market Moves: Fed Conundrum, Inflation Data, and Emerging Market Trends
Market Overview and Key Developments
(Corrects gold price in "Today's Key Market Moves" section to just under $4,400/oz, from just under $4,000/oz)
By Jamie McGeever
ORLANDO, Florida, Aug 11 (Reuters) - U.S. stocks fell and oil rose on Tuesday, price moves driven by deepening pessimism around the prospect of a U.S.-Iran peace deal, while major currency and bond markets were largely steady as investors awaited the release of U.S. inflation figures on Wednesday.
The Fed's Policy Dilemma
In my column today, I look at the tug-of-war going on in U.S. rates markets. A relatively dovish Fed would please President Donald Trump but risk pushing long-dated yields up, to Treasury Secretary Scott Bessent's irritation. On the other hand, Fed rate hikes would likely bring down the 10-year yield, infuriating Trump, but easing Bessent's worries about the 10-year yield. It's a conundrum.
Recommended Reading
If you have more time to read, here are a few articles I recommend to help you make sense of what happened in markets today.
Top Articles:
1. Hormuz to stay closed unless U.S. meets Iran's conditions, Iran official says
2. Inflation is the biggest problem, Fed's Goolsbee says
3. Trump reopens Fed battle at critical time for bond markets: Mike Dolan
4. Australia's central bank warns further hike "quite possible" after holding rates steady
5. Shein plans to launch Hong Kong IPO as soon as August 19, sources say
Today's Key Market Moves
Major Indices and Sectors
• STOCKS: South Korea +1%, Europe and UK little-changed. Big three U.S. indices lower, Dow and S&P 500 -0.3%, Nasdaq -0.6%.
• SECTORS/SHARES: Three sectors on the S&P 500 rise, eight fall. Comms services -2%, energy +1%. Private credit giants KKR +8%, Apollo +6%. Honeywell -5%, Dell and Alphabet -4%. CoreWeave +9% after the bell.
Currency and Bond Markets
• FX: Very quiet across G10 FX, most pairs flat. CAD hits 2-month high. BRL among biggest EM decliners -1%, CLP +0.5%.
• BONDS: U.S. 3-year auction goes well, strong 2.71 bid/cover. U.S. yields down 1-2 bps across the curve.
Commodities and Metals
• COMMODITIES/METALS: Oil +1.4%, gold pauses recent rally just under $4,400/oz.
Today's Talking Points
Circular Thinking in AI and Credit Markets
Nvidia has struck a $500 billion "deal" with the world's top private credit and equity firms to essentially help them fund the purchases of its chips. It points to plenty of institutional demand still out there for "compute", which Nvidia CEO Jensen Huang on Monday said is now an "investible asset class."
Perhaps. But if you believe the AI boom is built on labyrinth-like foundations supported by increasingly opaque and circular financing, this will probably raise another red flag — the seller is underwriting the buyer’s debt on a huge scale, and hyperscalers are piling another $500 billion on top of the roughly $250 billion already borrowed this year, analysts point out. Whether this matters much, or at all, comes back to a familiar point — will the AI splurge generate the returns needed to justify outlay and borrowing?
CPI on the Prize: Inflation Data's Impact
U.S. rates market pricing right now for the Fed's September meeting is essentially a coin flip, between no change and a 25-basis-point rate hike. The July CPI inflation report to be released on Wednesday morning may go a long way to deciding how the coin lands.
It's an important number. While the Fed bases its 2% annual inflation goal on the PCE index, investors are even more desperate than usual for signposts following Fed Chair Kevin Warsh's remarks and equivocal commitment to the 2% target at his last press conference. Warsh seems reluctant to hike rates, while a growing number of his colleagues on the FOMC are leaning in that direction. CPI on Wednesday, then PCE on August 26.
Re-emerging Markets?
Is the exodus from emerging markets over, and if so, does that point to an upswing across EM in the second half of the year? Flows data from the IIF on Tuesday showed that non-residents plowed nearly $19 billion into EM securities in July, snapping two straight months of outflows. But bonds did all the heavy lifting, with $26.7 billion of inflows, against a $7.8 billion equity outflow.
Still, the stock market bleeding was significantly reduced, and the recent deleveraging and repricing across tech-heavy markets like South Korea and Taiwan could tempt investors to rebuild exposure. EM stocks are still handily outperforming DM markets and Wall Street this year, but investors have had to stomach the usual FX risk, and unusually high realized volatility.
What Could Move Markets Tomorrow?
Key Events to Watch
- Developments in the Middle East
- Germany CPI inflation (July, final)
- U.S. Treasury sells $42 billion of 10-year notes at auction
- U.S. CPI inflation (July)
- U.S. earnings, including Cisco Systems
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Disclaimer
Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
(Reporting by Jamie McGeever; Editing by Nia Williams)
