Four-week string of gains comes to a halt for US stocks

Wall Street stocks extended their losses on Friday with the Nasdaq Composite and S&P 500 indices registering weekly declines that ended a four-week stretch of gains.

The broad S&P 500 closed 1.3 per cent lower on Friday, while the tech-heavy Nasdaq lost 2 per cent. With the falls the indices ended the week down 1.2 per cent and 2.6 per cent, respectively, their worst weekly performance since early July.

The moves came as investors turned their attention to the Jackson Hole symposium for central bankers, which could yield clues on how aggressively policymakers may raise interest rates in the coming months.

Rate-setters will meet next week in the Wyoming resort for the Federal Reserve Bank of Kansas City’s annual economic symposium at which they will discuss the steps they need to take to rein in rampant inflation. The summit is often used as a platform for the Fed, the world’s most influential central bank, to make big announcements on its policy stance.

The central bankers’ powwow will set the tone for how the Fed might approach inflation in the autumn. Data in July showed price gains in the US cooling, but Fed chair Jay Powell has said the central bank is looking for “compelling” evidence that inflation is moving down towards its 2 per cent target.

That has left some corners of the market betting the Fed will still raise interest rates aggressively in the months ahead.

“The narrative over recent weeks has been the idea of the Fed pivoting and inflation coming under control,” said Kiran Ganesh, a multi-asset strategist at UBS Global Wealth Management. “But Fed members have pushed back against that and perhaps some investors are putting on bets that they’ll sound a more hawkish message at Jackson Hole.”

Traders on Friday were also dealing with the expiry of options contracts, which can create volatility as investors decide whether to roll over their positions or start new ones. That may have exacerbated swings in the market, which can be more pronounced during the thin, summer trading volumes typically associated with August.

In US government debt markets, the 10-year US Treasury note yield — regarded as a proxy for borrowing costs globally — climbed 0.1 percentage points to 2.98 per cent. The yield on the two-year Treasury, which is highly sensitive to policy expectations, rose 0.05 percentage points to 3.25 per cent.

In the UK, a report on Friday pointed to robust British consumer spending two days after the release of stronger-than-expected UK inflation data. The figures added to broader concerns that central banks will aggressively lift borrowing costs globally.

Money markets are pointing to expectations that the Bank of England will raise its main interest rate by about 2.2 percentage points by the end of May 2023, up from predictions of about 1.6 percentage points at the end of last week.

In UK government bonds, gilts came under pressure after the country’s retail sales data showed a month-on-month rise of 0.3 per cent in July, much better than expectations in a Reuters poll for a fall of 0.2 per cent.

Those figures pushed short-term borrowing costs towards their biggest weekly rise in more than a decade, climbing 0.09 percentage points to 2.54 per cent, up about half a percentage point since the end of last week. Ten-year gilt yields gained 0.11 percentage points to 2.42 per cent.

“Investors are betting . . . that the Bank of England is going full-steam ahead on raising rates given that recent data readings have underlined a level of resilience in the economy,” said Baylee Wakefield, a portfolio manager for Aviva Investors.