Treasury yields climbed and stocks struggled after solid economic reports reinforced the case for the Federal Reserve to keep interest rates higher for longer.

Two-year U.S. yields hit the highest since 2006, while those on 10-year notes jumped 13 basis points to 4.83 per cent. Swap contracts tied to Fed rate decisions showed traders are pricing in more than 60 per cent odds that policymakers will raise interest rates by another quarter percentage point in January after holding steady in November. A move in December is considered possible, but less likely than January.

The S&P 500 erased gains, led by losses in its most-influential group — technology. Nvidia Corp. slumped as the U.S. is restricting the sale of chips the company designed for the Chinese market. Goldman Sachs Group Inc. fell amid a 33 per cent slide in profit. Bank of America Corp. advanced after traders reported their best third-quarter results in more than a decade.

“Good news about the economy is once again bad news, since it will keep policymakers on the fence on delivering more tightening,” said Edward Moya, senior market analyst for the Americas at Oanda. “It seems the U.S. economy isn’t ready to head into a recession just yet.”

Retail sales exceeded all forecasts and industrial production strengthened last month, fresh evidence of a resilient American consumer whose spending is helping stabilize manufacturing. The reports prompted a slew of economists, from Goldman Sachs to JPMorgan Chase & Co. and Morgan Stanley, to boost their tracking estimates for third-quarter gross domestic product.

Fed Bank of Richmond President Thomas Barkin said policymakers “have time” to work out whether they can hold interest rates steady or if they need to raise them further to get inflation to policymakers’ 2 per cent goal.

Traders also kept a close eye on the latest geopolitical events, with President Joe Biden set to travel to Israel Wednesday as a show of solidarity after the Oct. 7 attack by Hamas — which is designated a terrorist organization by the U.S. and European Union. The Israeli military struck the south of the Gaza Strip after ordering people to seek refuge there.

The Bank of Israel underscored the urgency of steadying the shekel following its slide to an eight-year low, reversing expectations among traders who bet on a big interest-rate cut as soon as next week. 

Elsewhere, the Bank of Japan is likely to discuss raising its inflation projection for fiscal year 2023 and 2024 at its policy meeting later this month, extending the period in which it sees prices hitting or exceeding its 2 per cent goal, according to people familiar with the matter. Following news of the central bank price view, the yen briefly strengthened.

Corporate Highlights

• U.S. Bancorp surged after the Fed released it from a commitment to meet requirements for larger banks by the end of next year.
• Bank of New York Mellon Corp. reported earnings that beat estimates, as higher interest rates boosted the firm’s revenue.
• Johnson & Johnson raised its 2023 revenue outlook as some older drugs beat sales estimates, including its bestseller Stelara that will face generic competition next year.
• Wyndham Hotels & Resorts Inc. called Choice Hotels International Inc.’s takeover offer “underwhelming,” rejecting a proposal that would create a dominant player in the budget hotel space.
• Dollar Tree Inc. climbed as Goldman Sachs raised its recommendation on the retailer to buy from neutral, based on its strong earnings growth potential.

Key events this week:

• Reserve Bank of Australia Governor Michele Bullock speaks, Wednesday
• China GDP, retail sales, industrial production, Wednesday
• UK CPI, Wednesday
• Eurozone CPI, Wednesday
• Morgan Stanley, Netflix, Tesla earnings, Wednesday
• Federal Reserve issues Beige Book economic survey, Wednesday
• Philadelphia Fed President Patrick Harker and New York Fed President John Williams speak at separate events, Wednesday
• Australia unemployment, Thursday
• Japan trade, Thursday
• China property prices, Thursday
• U.S. initial jobless claims, existing home sales, leading index, Thursday
• Federal Reserve Chair Jerome Powell, Chicago Fed President Austan Goolsbee, Atlanta Fed President Raphael Bostic, Philadelphia Fed President Patrick Harker, Dallas Fed President Lorie Logan speak at different events, Thursday
• Japan CPI, Friday
• China loan prime rates, Friday
• Philadelphia Fed President Patrick Harker 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 fell 0.3 per cent
• The Dow Jones Industrial Average was little changed
• The MSCI World index rose 0.2 per cent

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro rose 0.1 per cent to US$1.0575
• The British pound fell 0.3 per cent to $1.2183
• The Japanese yen fell 0.2 per cent to 149.78 per dollar

Cryptocurrencies

• Bitcoin rose 0.4 per cent to $28,531.38
• Ether fell 1.5 per cent to $1,564.84

Bonds

• The yield on 10-year Treasuries advanced 13 basis points to 4.83 per cent
• Germany’s 10-year yield advanced 10 basis points to 2.88 per cent
• Britain’s 10-year yield advanced three basis points to 4.51 per cent

Commodities

• West Texas Intermediate crude rose 0.8 per cent to $87.31 a barrel
• Gold futures were little changed