(Sept 30): Stocks joined bonds lower as a drop in oil prices did little to allay Wall Street’s concerns that still-elevated energy costs could fuel inflation and spur Federal Reserve (Fed) rate hikes.

Those worries sent Treasury 30-year yields to the highest level since 2002. Most companies in the S&P 500 fell, with the gauge posting back-to-back losses. The dollar rose. The euro hit its weakest in 16 months. Brent crude dropped below US$103 a barrel as the Trump administration ordered another release of oil from emergency reserves amid a stalemate in US-Iran talks.

“The conflict in the Middle East and the implications for forward inflation remain the primary macro narrative and are likely to dictate price action in US rates for the foreseeable future,” said Ian Lyngen at BMO Capital Markets.

Investors are demanding greater compensation to hold bonds as concerns about persistent inflation, government spending and surging corporate borrowing to finance the artificial-intelligence buildout intensify. Against this backdrop, money markets are pricing a series of rate hikes over the next year.

Fed Bank of New York president John Williams said one more rate increase this year may be appropriate to help contain inflation, but added there’s no urgency to act following the central bank’s decision to lift rates this month. Following his remarks, traders dialed back their bets on an October hike.

“We read this as most consistent with skipping October and hiking in December,” said Krishna Guha at Evercore.

Meantime, Fed governor Michael Barr on Tuesday repeated a warning that further rate increases will likely be needed to slow inflation.

In economic news, US job openings fell to a five-month low, suggesting employers grew more cautious about expanding their workforces towards the end of the summer, while lay-offs remained subdued. Consumer confidence dropped to the lowest level since 2014.

The latest labour-market data reinforces the “low-hire, low-fire” backdrop that has taken hold, according to Bret Kenwell at eToro. On the consumer-confidence front, he says the disappointing headline figure should not come as a surprise.

“Sentiment now sits at multi-year lows as persistent inflation and higher costs weigh on households,” Kenwell noted. “The question becomes whether we’ll see this materialise into weaker consumer spending — a question that earnings season will help answer.”

Uploaded by Isabelle Francis