Stocks climbed the most since June, while bond yields fell after economic reports in both the U.S. and Europe fueled bets that major central banks will pause their interest-rate hikes to prevent a recession.

In late-trading, a US$200 billion exchange-traded fund tracking the Nasdaq 100 (QQQ) gained after Nvidia Corp.’s revenue forecast beat estimates. Treasury two-year U.S. yields, which are more sensitive to imminent policy moves, sank below 5 per cent as data showed American business activity barely expanded on subdued customer demand. The 10-year German rate also slid as a contraction of private-sector activity in the euro area intensified.

To Jennifer McKeown at Capital Economics, August’s flash Purchasing Managers’ indexes “strongly suggest that we are at or close to the peak in monetary tightening cycles.”

Another relevant economic signal came from the U.S. mortgage industry, with applications for home purchases tumbling to an almost three-decade low. Separate data showed new-home sales hit the highest in over a year — as a surge in mortgage rates kept inventory on the resale market extremely limited. Traders also weighed a U.S. government report saying that job growth in the year through March will probably be revised down by 306,000 — a smaller adjustment than some economists expected. 

The advance in bonds Wednesday was also attributed to technical factors. That’s after a Treasury selloff that recently drove 10-year yields to the highest since late 2007 on speculation that interest rates would remain elevated for longer to curb inflation — even if the Fed decides to pause its hiking campaign in September.

“The recent surge in bond yields has pushed up mortgage and corporate borrowing rates, contributed to the fall in stock prices, and generated upward pressures on the dollar,” said Krishna Guha, vice chairman at Evercore ISI. “The Fed will have to consider the tightening in financial conditions when setting rates in coming months, including the decision on whether to hike in September.”

The market is eagerly awaiting Jerome Powell’s speech Friday at the Kansas City Fed’s Jackson Hole Economic Policy Symposium for clues on the outlook for policy after officials last month lifted borrowing costs to the highest level in 22 years.

Until recently, the way forward had been clear: Keep raising interest rates to bring the fastest inflation in four decades under control. Now, as inflation continues to cool, disagreements among policymakers are emerging over how much more work is left to do. Powell will likely use his platform this week to outline how the Fed will assess whether rates should go higher and determine when it’s time to start cutting them.

AI FRENZY

Another event that will set the tone for markets is an assessment on the outlook for artificial intelligence and how that will shape stock-trader sentiment over the next few months. That’s why the results from Nvidia, the company at the heart of the AI frenzy, are so relevant.

“There’s been an ongoing debate on whether Nvidia is even more important to the broad trajectory of markets than Fed Chair Powell’s comments from Jackson Hole on Friday,” said Quincy Krosby, chief global strategist at LPL Financial.

Investors also sifted through a batch of earnings from retailers. Kohl’s Corp. and Urban Outfitters Inc. climbed on earnings that beat estimates while Abercrombie & Fitch Co. advanced after boosting its full-year outlook. Foot Locker Inc. sank after cutting its full-year forecast and reporting results that fell short of Wall Street’s expectations amid concern over weakening spending patterns.

Corporate Highlights

• Esmark Inc. said it won’t make a takeover offer for U.S. Steel Corp., citing the United Steelworkers’ support for a rival US$7.25 billion bid from Cleveland-Cliffs Inc.
• WeWork Inc. is rounding up advisers for help with a restructuring as it struggles with a heavy debt load and poor financial performance, according to people with knowledge of the matter.
• Luxury builder Toll Brothers Inc. gained after reporting stronger-than-expected quarterly orders and raising its sales expectations as tight supplies of existing homes fueled demand for new ones.
• Advance Auto Parts Inc. climbed after naming a new chief executive officer and starting a strategic review of the business as it struggles to keep up with inflation.
• Grab Holdings Ltd. brought forward its profitability target after posting a narrower loss in the second quarter, buoyed by extensive cost cuts at the ride-hailing and food-delivery company. The shares rose.
• Peloton Interactive Inc. slumped after the fitness company gave a weak revenue forecast for the current quarter and said costs for a product recall were significantly more expensive than it anticipated.
• Mallinckrodt Plc plans to file bankruptcy for the second time in less than three years after battling business declines and struggling to keep up with payments on a US$1.7 billion settlement resolving a wave of lawsuits accusing the drugmaker of fueling the U.S. opioid epidemic.

Key events this week:

• U.S. initial jobless claims, durable goods, Thursday
• Kansas City Fed’s annual economic policy symposium in Jackson Hole begins, Thursday
• Japan Tokyo CPI, Friday
• U.S. University of Michigan consumer sentiment, Friday
• Fed Chair Jerome Powell, ECB President Christine Lagarde to address Jackson Hole conference, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 rose 1.1 per cent as of 4 p.m. New York time
• The Nasdaq 100 rose 1.6 per cent
• The Dow Jones Industrial Average rose 0.5 per cent
• The MSCI World index rose 1 per cent

Currencies

• The Bloomberg Dollar Spot Index fell 0.3 per cent
• The euro rose 0.2 per cent to US$1.0863
• The British pound fell 0.1 per cent to US$1.2718
• The Japanese yen rose 0.7 per cent to 144.87 per dollar

Cryptocurrencies

• Bitcoin rose 2.9 per cent to US$26,603.63
• Ether rose 3.4 per cent to US$1,685.8

Bonds

• The yield on 10-year Treasuries declined 14 basis points to 4.18 per cent
• Germany’s 10-year yield declined 13 basis points to 2.52 per cent
• Britain’s 10-year yield declined 18 basis points to 4.47 per cent

Commodities

• West Texas Intermediate crude fell 1.3 per cent to US$78.62 a barrel
• Gold futures rose 1 per cent to US$1,945.90 an ounce