* Traders price in 69% odds of a Fed rate increase in
September
* US 10-year Treasury yield rises 6.35 basis points to
4.727%, highest since January 2025
* BOJ leaves rates unchanged but signals resolve to push up
borrowing costs
(Updated in New York morning time)
By Karen Brettell
July 31 (Reuters) - Stocks were mixed on Friday, giving back
much of their earlier gains, while longer-dated Treasury yields
pushed to new multi-year highs, after several Federal Reserve
officials argued that further interest rate hikes are needed to
combat inflation.
Currency markets also stayed on alert for further
intervention, a day after Japanese authorities stepped in to
support the yen, according to a market source.
Three Fed policymakers who had dissented in favor of a rate
hike at this week's meeting made their case publicly on Friday
for higher rates. The Fed kept rates unchanged - a widely
expected outcome that aligned with market pricing, which had
priced in roughly a one-in-three chance of a hike.
Dallas Federal Reserve President Lorie Logan said on Friday
that without "modest action in the near term," the U.S. central
bank will not be able to get inflation back on track to its 2%
target, given a solid labor market that is strengthening and
upside risks to price pressures.
That echoed similar comments by Cleveland Fed President Beth
Hammack and Minneapolis Fed President Neel Kashkari.
The yield on benchmark U.S. 10-year notes rose
6.35 basis points to 4.727%, the highest since January 2025.
The 30-year bond yield rose 5.14 basis points to
5.2584%, the highest since mid-2007.
Traders are now pricing in 69% odds of a rate increase at
the Fed's September meeting.
Oil prices sharply on Friday as reports that some tankers
were forced to turn around in the Strait of Hormuz prompted
traders to reassess shipping flows through the key waterway.
Oil prices rose sharply in July, with Brent crude
headed for monthly gains for the first time since March.
"The shock absorbers in oil markets are dwindling fast, so a
failure to de-escalate would be materially costlier than
previous rounds of tension," wrote Teddy Bunzel, head of Lazard
Geopolitical Advisory at Lazard Asset Management.
Shipments through the crucial Strait of Hormuz remain
disrupted. The alternative route through the Bab el-Mandeb
Strait has also come under attack from the Iranian-backed
Houthis, further worsening the outlook.
STOCKS GIVE BACK EARLIER STRENGTH
Stocks had rallied earlier in the session after strong
earnings from Amazon ( AMZN ) and Microsoft ( MSFT ) eased investor jitters and
drew traders back into the AI trade, but hawkish Fed commentary
and rising yields eroded those gains.
Microsoft ( MSFT ) on Wednesday forecast strong cash
generation through fiscal 2027. Amazon ( AMZN ) followed a day
later with its strongest cloud growth in more than four years,
reassuring investors eager for proof that massive AI spending is
paying off.
"There's significant drawdowns over the course of the month
and everything related to artificial intelligence," said Art
Hogan, chief market strategist at B Riley Wealth.
"Now with the hyperscalers, in particular Amazon ( AMZN ), coming out
and talking about the amount of revenue and demand for their
cloud services, which in general is a lot of the small and
medium businesses, that's put a significant interest back into
the neo-cloud companies and their offerings as it pertains to
rollout of AI strategies."
The Dow Jones Industrial Average was last down 0.06%
at 52,179.23, the S&P 500 fell 0.02% to 7,435.72 and the
Nasdaq Composite rose 0.19% to 25,170.38.
The pan-European STOXX 600 index fell 0.03%, while
Europe's broad FTSEurofirst 300 index also dipped
0.03%.
South Korea's battered KOSPI leapt 17.91%, mounting
a record comeback after heavy losses earlier this week. The
tech-heavy bourse, still about 30% off its all-time high, has
become emblematic of the sharp swings in investor sentiment
towards AI-related stocks.
MSCI's gauge of stocks across the globe was
up 0.73% at 1,115.07.
BOJ HOLDS RATES DAY AFTER INTERVENTION
The yen strengthened 0.03% against the greenback to
159.49 per dollar, following sharp gains on Thursday after Japan
conducted yen-buying, dollar-selling intervention, according to
a market source. The U.S. Treasury has also told several banks
it may intervene in the yen market on Friday and that they
should "stand ready for future action," a source familiar with
the matter told Reuters.
The BOJ kept interest rates unchanged on Friday, but
signalled its resolve to push up borrowing costs.
At a press conference, BOJ Governor Kazuo Ueda said
inflation risks were skewed to the upside, and the central bank
was prepared to speed up the pace of rate hikes should monetary
conditions be accommodative.
Analysts note that intervention has had limited success in
providing durable support for the yen, and say the currency's
outlook is unlikely to improve unless the BOJ raises rates.
"The yen fundamentals and technicals are very poor.
Intervention is not a credible, long-term solution," said Lauren
van Biljon, senior portfolio manager, rates and FX, at Allspring
Global Investments.
The dollar index, which measures the greenback
against a basket of currencies including the yen and the euro,
rose 0.21% to 100.28, with the euro down 0.36% at
$1.1485.
Spot gold fell 1.52% to $4,040.70 an ounce.