Treasuries sold off while equities churned as investors contemplated the prospect of higher interest rates and rising oil prices. The U.S. dollar extended its climb for a sixth day.

The yield on the 10-year traded at a 16-year high after oil hit a one-year high amid dwindling crude stockpiles and worries about the pressures on consumers. The ICE BofA MOVE Index — which tracks expected bond volatility — hit the highest in a month. 

Stock indexes erased a midday dip after U.S. President Joe Biden touted the promise of artificial intelligence in a meeting with advisers. The promise of executive action on AI in the fall helped the Nasdaq 100 end the day up 0.2 per cent with AI-favorite Nvidia Corp. pulling the tech-heavy gauge higher. The S&P 500 was little changed after falling as much as 0.8 per cent.

A potential shutdown that risks up to $1.9 billion a day in lost or delayed revenue and an autoworkers’ strike are worrying traders who are waiting for any sign that U.S. Federal Reserve officials may soften their hawkish message. 

“If these downside scenarios hit the U.S. economy, we might then have to do less with our monetary policy to bring inflation back down to two per cent because the government shutdown or the auto strike may slow the economy for us,” Minneapolis Fed President Neel Kashkari said in an interview on CNN. 

Evercore ISI’s Krishna Guha said some tempering of the central bank’s messaging may be possible but an about-face is unlikely. 

“Investors are looking ahead to upcoming speaking events as potentially providing an opportunity for the Fed leadership to dial it back with a view to curtailing the tightening in financial conditions,” said the firm’s vice chairman. “We do not think there is any realistic prospect of any early U-turn absent a further dramatic surge in yields.”

Traders will be honing in on speeches from Fed Chair Jerome Powell and a slew of other central bank officials later this week. Friday data on the Fed’s preferred inflation measure, the personal consumption expenditures price index, will also be closely watched.

Marko Kolanovic, the chief market strategist at JPMorgan Chase & Co., issued a warning Wednesday that there could be more volatility ahead, calling this summer’s lower levels in the VIX — Wall Street’s fear gauge — a “technical aberration.” 

Meanwhile, consumer confidence has taken a knock from higher costs at the pump and the spreading impact of aggressive rate hikes. West Texas Intermediate briefly topped $94 a barrel while gold plunged for the third day. Appetite for the dollar continued to climb as a gauge of greenback strength rose for a sixth-day, on track for its longest winning streak in a year. 

The Federal Reserve Bank of New York’s measure of how much bond investors are compensated for holding long-term debt turned positive for the first time since June 2021, suggesting traders are betting on elevated policy rates.

“We are at an inflexion point in the economy and the bond market,” Bob Michele, CIO for fixed income at JPMorgan Asset Management, said in an interview with Bloomberg Television. “The last 15 years were not normal, we got to a structural low and now we are going to revert to something that is more normal.”

A large options position held by a JPMorgan Chase & Co. equity fund has the potential to add fuel to the U.S. stock selloff when tens of thousands of protective put contracts expire Friday at a strike price not far below the current level of the S&P 500.

Key events this week:

• Eurozone economic confidence, consumer confidence, Thursday
• U.S. initial jobless claims, GDP, Thursday
• Fed Chair Jerome Powell town hall meeting with educators while Richmond Fed President Tom Barkin, Chicago Fed President Austan Goolsbee make speeches, Thursday
• Eurozone CPI, Friday
• Japan unemployment, industrial production, retail sales, Tokyo CPI, Friday
• U.S. consumer spending, wholesale inventories, University of Michigan consumer sentiment, Friday
• ECB President Christine Lagarde speaks, Friday
• New York Fed President John Williams speaks, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 was little changed as of 4 p.m. New York time
• The Nasdaq 100 rose 0.2 per cent
• The Dow Jones Industrial Average fell 0.2 per cent
• The MSCI World index fell 0.2 per cent

Currencies

• The Bloomberg Dollar Spot Index rose 0.4 per cent
• The euro fell 0.6 per cent to $1.0506
• The British pound fell 0.2 per cent to $1.2139
• The Japanese yen fell 0.3 per cent to 149.59 per dollar

Cryptocurrencies

• Bitcoin rose 0.4 per cent to $26,248
• Ether rose 0.6 per cent to $1,596.6

Bonds

• The yield on 10-year Treasuries advanced seven basis points to 4.61 per cent
• Germany’s 10-year yield advanced four basis points to 2.84 per cent
• Britain’s 10-year yield advanced three basis points to 4.36 per cent

Commodities

• West Texas Intermediate crude rose 3.6 per cent to $93.64 a barrel
• Gold futures fell 1.4 per cent to $1,893.70 an ounce

This story was produced with the assistance of Bloomberg Automation.

--With assistance from Cecile Gutscher, Alice Atkins, Sagarika Jaisinghani and Sujata Rao.