Warsh's hike warning lifts yields and the dollar, sinks gold

US equities faded through the afternoon after Kevin Warsh's Jackson Hole address. The S&P 500 stood at 7,711.76, 0.25% lower, as trading wound up; the Nasdaq Composite was 0.52% weaker at 26,402.42, and the Dow was effectively flat at 53,559.99, down 0.02%. All three had been higher in the first hour.

Europe closed before the American fade set in and kept its gains: the DAX ended 0.77% higher at 26,569.99, the CAC 40 up 0.98% at 8,401.18 and the Euro Stoxx 50 up 0.95%, with the FTSE 100 lagging at 10,824.26, up 0.29%. Asia had finished mixed hours earlier — the Nikkei 225 up 0.22% at 66,405.56, the Shanghai Composite up 1.01% at 3,952.18, the Hang Seng down 0.27%.

One event explains almost the whole tape. Warsh, delivering his first Jackson Hole keynote as Fed chair at 10:00 ET, said the economy appears to have strengthened and that better summer inflation readings do not tell him underlying trends have meaningfully improved — language read as opening the door to a rate rise rather than a cut. Futures moved quickly: traders were pricing roughly a 60% chance of a September hike by the afternoon.

The cross-asset response is textbook for a hawkish repricing. The five-year Treasury yield rose 8.5 basis points to 4.481% against 4.8bp on the ten-year and just 1.5bp on the thirty-year — a flattening driven by the policy-sensitive front end, not by any new view on long-run growth. The dollar index gained 0.53% to 99.684, with the euro down 0.60% at 1.1585 and sterling down 0.48%. Gold, which pays no coupon and is priced in dollars, took the brunt: down 2.24% to $4,506.30. Bitcoin fell 3.56% to $77,398.90.

Equity damage was concentrated where duration is longest. Technology was the worst S&P sector at -1.55%, while communication services (+1.42%) and consumer discretionary (+1.15%) held up. Europe's outperformance is partly currency: a weaker euro flatters exporters, and continental carmakers led the advance.

This was a repricing of rates, not a scare. The VIX finished at 14.43, down 0.55%, and the MOVE index rose only 1.58% to 70.97 — bond volatility barely registered a Fed chair floating a hike. The stress shows in dispersion instead: an 11-sector spread from communication services at +1.42% to technology at -1.55%, and the Russell 2000 down 1.39%, small caps being the most sensitive to funding costs. Our UK breadth was positive (426 advancers to 308) and Europe's mildly so; the US reading is Thursday's and was already negative at 2,703 advancers against 3,068 decliners, so this week's headline gains were narrow before today.

The calendar was thin and the speech was the event. Warsh spoke at 10:00 ET (15:00 BST) at the Kansas City Fed's symposium, with no US data release of consequence alongside it. July personal income and PCE were Wednesday's news, released on 26 August, and Warsh's reference to better-than-expected summer inflation readings pointed back to that report rather than to anything new. Nothing further of substance is scheduled today; attention now moves to next week and to whether other Fed speakers echo or soften the hike framing before the September meeting.

The software cohort that reported after Wednesday's close was still setting the tone: in Thursday's session Okta rose 28.63% to $172.91 on a beat and raised outlook tied to securing AI agents, with Salesforce up 22.58%, CrowdStrike 20.50% and Palo Alto Networks 12.83%. Today's reporters were mostly outside the US — BYD posted a second-quarter profit rise, its first in over a year, as record exports offset weak Chinese sales, and Austria's Strabag jumped 15.75% on results, the biggest gainer in Europe.