Bessent eyes bigger toolkit as market rally fizzles out

Stock and bond markets soured after their one-day rally on the latest US intervention to cool long-dated government bond yields, and Treasury secretary Scott Bessent is prepared to further expand his efforts to bring down those borrowing costs, saying they’re out of whack with economic fundamentals.

Declines on Wall Street were widespread with Walmart leading the Dow Jones Industrial Average lower as the big-box retailer’s earnings missed expectations, while drugmaker Moderna came back down to earth after its shares more than doubled on a promising trial to treat melanoma.

Anthropic pulled away in the race for the next mega initial public offering, with the Claude chatbot developer reportedly seeking to at least match the record-breaking valuation of Elon Musk’s SpaceX listing, while Alibaba’s growing capital expenditure on artificial intelligence infrastructure weighed on the Chinese tech giant’s earnings.

And the cool winds are set to carry through to the antipodes, with Australian futures pointing to a soft start to the trading day for the ASX, with AI data centre developer DigiCo Infrastructure due to report across the Tasman.

Short-lived

Stocks on Wall Street declined and government bond yields were back on the rise as investors dialled back their expectations that an expanded US Treasury bond buyback programme would rein in long-dated yields.

US Treasury secretary Bessent told CNBC he had a big toolkit to bring down yields, which he said didn’t reflect economic fundamentals, and that a new plan to cut federal government spending would probably be announced later this week.

The yield on the US 30-year treasury rose 4 basis points to 5.13% at 7am in Auckland, while the S&P 500 slid 0.7%, the Dow sank 1.3% and the tech-heavy Nasdaq Composite dropped 1%. The UK’s FTSE 100 was marginally higher, while Germany’s DAX dipped 0.4% and France’s CAC 40 slipped 0.6%.

“US long-end Treasury yields rebounded after investors judged the Treasury’s plan to curb borrowing costs as a short-term fix that did little to address underlying structural issues,” Bank of New Zealand senior interest rate strategist Stuart Ritson said in a note.

Nikkei Asia reported that currency traders were also wary of further intervention in foreign exchange markets. The kiwi dollar traded at 59.40 US cents at 7am from 59.51 cents yesterday, and nudged up to 94.55 yen from 94.37 yen.

Walmart slumped 9.7% in late trading after reporting its slowest quarterly sales growth in six years, with earnings missing analysts’ forecasts.

Moderna sank 22%, giving back some of yesterday’s surge when it more than doubled on a positive trial for a melanoma treatment in conjunction with Merck & Co’s Keytruda drug.

Meanwhile, Deere & Co rallied after the tractor maker beat expectations, with an increase in orders for its equipment.

Crypto-related companies such as Strategy and Coinbase rallied after industry executives met with US President Donald Trump yesterday. Bitcoin jumped 5.9% to US$72,414 at 7am.

AI dreams

Meanwhile, Bloomberg reported Anthropic expected to match or beat the size of SpaceX’s IPO, with a view to publicly file for a listing as soon as the end of the month. Separately, the Claude developer said it planned to let business customers keep greater control of their data when using the most powerful AI models.

Super Micro Computer Co said it completed an independent investigation into the alleged smuggling of Nvidia chips into China, with reviewers finding the company’s senior management had no knowledge of the scheme.

Alibaba Group ramped up quarterly capital spending on AI to almost US$10 billion, contributing to a 75% slide in profit, even as the Chinese tech giant’s revenue grew.

And The Information reported Nvidia planned to start shipping small volumes of AI chips designed for Chinese customers by the end of the year.

Meanwhile, China Evergrande founder Hui Ka Yan was sentenced to life in prison after his guilty plea in April to illegally taking public deposits and hiding liabilities. The property giant was China’s biggest developer for a time, but collapsed in spectacular fashion in 2021 under an untenable weight of debt.

And Hong Kong conglomerate CK Hutchison launched international arbitration proceedings against Panama, seeking US$1.5 billion in damages over the cancellation of its concession to operate two ports on the Panama Canal.

Australian futures are pointing to a 0.3% decline for the S&P/ASX 200 index when trading opens across the Tasman, with DigiCo Infrastructure among companies reporting, along with Guzman Y Gomez, TPG Telecom and Inghams.

Meanwhile, The Australian reported a group of Australian gambling giants were considering bidding for new online gaming licences in New Zealand after the Department of Internal Affairs sought expressions of interest in the new regime.

New Zealand’s earnings season pauses for a breather today, with South Port New Zealand on the calendar, while Statistics New Zealand’s July merchandise trade figures are due, along with the Reserve Bank’s monthly credit card spending and balance figures.

Greg Boland, Moomoo market strategy consultant, said the local bourse would probably start the day weaker, following Wall Street’s lead.

“For New Zealand investors today, the combination of a weaker Wall Street, higher US bond yields and stronger oil prices points to a softer start, although the energy sector could provide some support,” Boland said in a note.

Reporting by Paul McBeth. Image from Woldai Wagner on Unsplash.