US stocks rise as survey sparks hopes Fed will hold interest rates

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U.S. stocks opened higher on Wednesday after surveys of U.S. business activity showed a slowdown in the economy, raising hopes that the Federal Reserve will limit further rate hikes to curb inflation.

The benchmark S&P 500 rose 0.7% in early trade, while the Nasdaq Composite gained 1.2%.

S&P Global’s US composite PMI index, a measure of manufacturing and services sector activity, fell to 50.4 in August from 52 in July, the biggest drop since November. A reading below the neutral 50 points indicates that most of the businesses surveyed said their activity was generally contracting.

Big tech stocks fell earlier this month as strong U.S. economic data signaled to investors that the Federal Reserve may keep interest rates higher for longer in an attempt to ease ongoing price pressures.

Investors were also optimistic ahead of U.S. tech leader Nvidia’s earnings report after the market close today. The chipmaker’s blowout profit forecast has helped fuel gains in artificial intelligence-related tech stocks this year, with the company opening 1.5% higher.

Investors will be closely watching an economic conference later this week in Jackson Hole, Wyoming, where Federal Reserve Chairman Jerome Powell is expected to hint at the central bank’s future path of monetary tightening.

Meanwhile, German bond yields and the euro fell on Wednesday after a survey of business activity in the bloc fell short of expectations, with traders betting a slowing economy would force the central bank to limit rate hikes.

The yield on policy-sensitive two-year German bunds fell 0.1 percentage point to 2.99% after the HCOB flashed that the Eurozone Composite Purchasing Managers Index fell to a 33-month low of 47 in August. The figure was down from 48.6 in the previous month and below market expectations of 48.5.

The yield on the regional benchmark 10-year German bund fell 0.11 percentage point to 2.54%. Bond yields rise as prices fall. The euro was down 0.1 percent at $1.082.

The ECB last raised interest rates in July, by 25 percentage points to 3.75%, the highest level since 2001.

On Wednesday, traders saw a 51 percent chance the ECB would hike rates by another 25 basis points at its next policy meeting, according to data compiled by Refinitiv based on prices of interest rate derivatives.

The survey also dampened gains in the region’s stock markets as traders weighed whether the survey would put pressure on the European Central Bank to halt interest rate hikes across the 20-country bloc.

The Stoxx Europe 600 index across the region gave up some early gains to rise 0.3%. France’s CAC 40 turned negative, falling 0.1%, while Germany’s Dax fell 0.1%.

Meanwhile, Asian markets were mixed on Wednesday, with China’s CSI 300 down 1.6%, South Korea’s Kospi down 0.4%, Hong Kong’s Hang Seng up 0.3% and Japan’s Topix up 0.5%.