Markets now see higher rates after Warsh speech

(AWP Alliance News) - Shares ended lower in New York on Friday following US Federal Reserve Chair Kevin Warsh's hawkish Jackson Hole speech, which fuelled anticipation of higher interest rates.

The Dow Jones Industrial Average closed down 9.45 points at 53,559.99. The S&P 500 fell 19.23 points, 0.3%, to 7,711.76. The Nasdaq Composite ended up 138.93 points, 0.5%, at 26,402.42.

For the week, the DJIA and S&P 500 gained 0.5%, and the Nasdaq Composite advanced 0.8%.

"The dollar surged across the board after the Fed Chair Kevin Warsh surprised with a hawkish-leaning speech at the Jackson Hole summit. All the bearish dollar bets that had been accumulated since last Friday on the back of data weakness and bond market troubles had to be squared and that triggered a short squeeze rally for the dollar. Gold and silver dropped, as a result, as too did bitcoin, while US indices were giving back earlier gains. Bond yields pushed higher to near recent highs," analyst Fawad Razaqzada wrote.

"The counterargument against the hawkish re-pricing here is that with oil prices stabilising amid signs of increased traffic flows through the Strait of Hormuz, inflationary pressures could come down and the Fed may not hike after all, especially if the upcoming jobs and CPI reports both come in weaker in the next two weeks. But that's something perhaps to be considered for the week ahead," Razaqzada continued.

Key data next week includes US manufacturing PMI on Tuesday, followed by Federal Reserve Beige Book and US total vehicle sales on Wednesday. On Thursday, investors will digest US composite PMI. The August nonfarm payrolls report is scheduled for Friday.

In the highly anticipated address, Warsh called numbers on the price-stability side of the Fed's mandate "more concerning" than those on the employment side.

The Fed chair said he would be "hard pressed" to describe current financial conditions as "restrictive," a potential hint at high rates ahead. He stopped short of saying he would support a hike, however.

"I stand here today committed to a discipline, not to a decision," Warsh hedged.

Earlier in the speech, Warsh said that he did not see recent data as suggesting underlying inflation trends had "meaningfully improved."

On the employment side of the Fed's mandate, "our country is doing well," Warsh said, noting he believed the current unemployment level of 4.1% was "broadly consistent with full employment."

Markets now expect the Fed to raise its benchmark interest rate to the 3.75-4.00% range next month, according to the CME FedWatch tool. Just yesterday, the expectation had been for rates to be held steady.

The yield on the 10-year US Treasury rose to 4.73% on Friday from 4.67% on Thursday. The 30-year yield was at 5.21%, up from 5.19%.

Against the dollar, the euro was at USD1.1582, down from USD1.1648. Sterling fell to USD1.3532 from USD1.3587. Against the yen, the dollar was at JPY160.12, up from JPY159.42.

Gold fell to USD4,456.8 an ounce from USD4,606.88 on Thursday.

A barrel of Brent fetched USD89.37 on Friday, up from USD88.84 on Thursday. West Texas Intermediate fell to USD83.27 from USD84.19.

Iran's Foreign Minister on Friday said the country was open to negotiations with the US, as the Middle East war reached its sixth full month.

"Putting diplomacy back on track isn't impossible. It hinges on US understanding of one simple fact: pressure doesn't work," Iranian Foreign Minister Abbas Araghchi posted on X.

Araghchi met his Qatari counterpart on Thursday in Tehran to discuss the Strait of Hormuz. This followed talks with Oman and Pakistan earlier in the week.

In Europe, London's FTSE 100 ended up 0.3%. The DAX 40 rose 0.8% in Frankfurt. The CAC 40 in Paris climbed 1.0%.

In China, the Shanghai Composite closed down 0.1%. The Hang Seng gained 0.1% in Hong Kong. The Nikkei 225 ended up 0.4% in Tokyo. The S&P/ASX 200 ended up 0.6%.

On the corporate front, investors examined a batch of high-profile earnings reports published late Thursday.

Marvell Technology shares sank 10% on Friday after analysts questioned the near-term benefit of a USD12.18 billion warrant agreement with Google signed last week.

In FY27, Marvell now expects its Data Centre business to grow 60% year-on-year, up from 50% before, while in FY28 the firm said it expects its custom business to double and then accelerate "significantly" in FY29.

On the earnings call, analysts pointed out that the revised guidance didn't appear to factor in much from the deal, suggesting much of the benefit will be seen in the outer years.

Revenue increased 36% to a record USD2.74 billion in its second quarter to August 1 from USD2.01 billion a year ago, compared to FactSet consensus of USD2.71 billion. Non-GAAP diluted EPS totalled USD0.94, beating FactSet consensus of USD0.93.

Autodesk closed down 3.7% on Friday after it guided for third-quarter non-GAAP EPS of USD3.04 to USD3.09, shy of analyst calls for USD3.14. The company did raise its revenue outlook, however, citing higher underlying growth expectations and its recent acquisition of MaintainX.

In its second quarter to July 31, Autodesk reported revenue of USD2.05 billion, up 16% from USD1.76 billion a year ago. Net income jumped 57% to USD492 million from USD313 million, or to USD2.33 per diluted share from USD1.46.

Workday shares climbed 5.8% on Friday despite falling immediately after its own second quarter print.

Revenue for the quarter ended July 31 rose 13% to USD2.65 billion from USD2.35 billion the year before, a touch ahead of the average analyst estimate of USD2.64 billion, according to data compiled by LSEG. Diluted earnings per share jumped to USD2.57 from USD0.84 the year prior.

The company has raised its full-year 2027 guidance to a subscription revenue range of USD9.94 billion to USD9.95 billion, from USD9.93 billion to USD9.95 billion before.

Eli Lilly on Friday said the US Food and Drug Administration approved its Mounjaro treatment to reduce cardiovascular risk in adults with type 2 diabetes.

The Indianapolis, Indiana-based pharmaceutical firm said Mounjaro is the "first and only GIP and GLP-1 receptor agonist proven to lower heart attack, stroke or cardiovascular death risk in adults with type 2 diabetes at high risk for these events - in addition to its established A1C and weight loss benefits."

The FDA's approval was based on results from the SURPASS-CVOT trial, which demonstrated non-inferiority to the Trulicity GLP-1 treatment, along with an 8% lower rate of cardiovascular death, heart attack or stroke.

Lilly shares closed down 0.1%.

Monday's global economic calendar has the Dallas Fed manufacturing index, Japan industrial production data and the China NBS manufacturing PMI.

By Aidan Lane, Alliance News reporter

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