August 16, 2022

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Bond yields jump, stock futures rise after Powell said the Fed is ready to be more aggressive

Bond yields jump, stock futures rise after Powell said the Fed is ready to be more aggressive

US government bond yields jumped and stock futures soared, as investors digested Federal Reserve Chair Jerome Powell’s more aggressive tone to curb inflation.

S&P 500 and Dow Jones industrial index futures advanced 0.3% and 0.5%, respectively, on Tuesday. The technology-focused Nasdaq 100 futures rose 0.1%. Major US stock indexes closed lower on Monday after Powell said The Fed was ready to raise interest rates In steps of half a percentage point if necessary to curb inflation.

In the US Treasury market, the sell-off in government bonds intensified, sending the 10-year US Treasury yield to 2.351% from 2.315% on Monday. The benchmark bond yield is now hovering around the highest yield since May 2019, before the Covid-19 pandemic upended financial markets. Yields rise when bond prices fall.

Stocks, bonds, commodities and currencies were hit hard by volatility last month as investors tried to assess the economic fallout from Russia’s war in Ukraine. Many investors now fear that the war could keep inflation sustainable and hamper economic growth in the United States and Europe.

Traders worked on the floor of the New York Stock Exchange on Monday.


Photo:

Brendan McDermid/Reuters

But this week, investors faced a new curveball when Powell spoke on Monday, speaking in a tone tougher than the one he used when Raising interest rates from nearly zero last week. He has repeatedly stressed the uncertainty facing the central bank, saying that officials are ready to move policy in a more volatile direction, saying that the Fed will switch to a more restrictive stance if necessary.

These comments prompted some analysts and investors to reassess interest rate expectations. Economists at Goldman Sachs said in a note after Powell’s comments that they now expect increases of half a percentage point at the Fed’s May and June meetings. That compares with expectations of quarter-percentage point increases in both previous meetings.

“The message that came out of [Fed] Last week’s meeting is that they will stress [monetary policy] “But the US economy is resilient enough to handle that,” said Howe Roberts, head of analytics at Quant Insight, a data analytics company. “The stock market chose to emphasize the economic resilience part.”

He said yesterday’s comments upset some of those expectations, and heightened fears that the Fed could tighten more quickly at a time when the economy slows. “The big variable now is the economic growth side of things,” Mr. Roberts continued.

The inversion of the US Treasury yield curve has been seen as a warning sign of a recession for decades, and it looks like it is about to light up again. WSJ’s Dion Rabouin explains why an inverted yield curve can be so reliable in predicting a recession and why market watchers are talking about it now. Illustration: Ryan Trevis

Many investors keep a close eye on the so-called yield curve, which measures the difference between short and long-term interest rates, and is often seen as a strong indicator of sentiment toward economic growth prospects. Recently, the gap between the yields on short-term and long-term US Treasury bonds shrinkraising fears that the bond market is close to signaling a possible recession.

The two-year Treasury yield – which is particularly sensitive to changes in monetary policy – rose to 2.181% on Tuesday from 2.132% on Monday.

To get a better reading of the US economic landscape, investors Tuesday morning will analyze data from the Federal Reserve in Richmond on manufacturing activity. Economic data, due at 10 AM ET, is expected to post an increase from the previous month.

In pre-market trading in New York, bank shares rose, following similar moves in Europe. in the United States,

Morgan Stanley

And the

City Group

Each added 0.8%. in Europe,

Société General

Advance 0.9% and

German Bank

It jumped 3.6%.

in other sectors,

nike

It advanced 5% in pre-market trading in New York after it reported revenue It exceeded analysts’ expectations. shares

octa

It fell 7.3% after a hacking group posted screenshots claiming to have gained access to official Okta.com and other systems. The company said Tuesday that A preliminary investigation found no evidence About any ongoing malicious activity, saying that the screenshots were likely related to a security incident that occurred in January.

In energy markets, Brent crude futures, the international benchmark, rose 0.9% to $116.62 a barrel. Last week, Brent crude prices fell below $100 before reversing and moving higher. Support for an EU-wide ban on the purchase of Russian oil It grows within the block, which increases the possibility of more fluctuations in the future.

In the cryptocurrency markets, bitcoin is up about 4.2% from the 5 p.m. ET level on Monday to trade around $42,896. The price of the cryptocurrency has fluctuated sharply over the past month, but it has been trading pretty much above $40K since the middle of last week.

In Europe, the Stoxx Europe 600 Continental Index rose 0.4%, putting it on course to rise for the fifth consecutive session.

In Asia, the major indices also closed largely higher. Hong Kong’s Hang Seng is up 3.2%, while Japan’s Nikkei 225 is up 1.5%. China Shanghai Composite advanced 0.2%.

write to Caitlin McCabe at [email protected]

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