On Wednesday, the dollar climbed as did Treasury yields, ahead of the speech of the US Federal Reserve Chairman Jerome Powell in two days.
It is possible that his speech might reiterate the aggressive policy of the central bank to curb inflation, or it could also hint at a ‘pivot’ to a slowdown in interest rate hikes.
Shares and yields
Choppy trading saw European and US shares gain, as investors were trying to figure out whether the US Fed was likely to stay aggressive until it brings inflation down to its 2% target, or slow down the rate hikes.
There was a rise in yields in both US and German benchmark 10-year notes to a high of eight weeks. As for short-dated British government bond yields, they also climbed to a high of 14 years.
Rising energy prices in Europe increased worries about more inflation in Britain and Germany. There was a further rise in 10-year US Treasury yields, as they reached 3.126%.
This indicated that the rebound seen in stocks could be short-lived. As for the German 10-year bonds, they saw their yields rise to 1.388% and two-year UK bonds were up at 2.955%.
Analysis
Market analysts said that typically when yields go above the 3% mark, it means that stocks are about to face a tough time.
They said that this had been seen in May, and June and was happening right now as well. As long as the 10-year government bond yield remains above the 3% mark, there would be headwinds.
The markets have been divided over bets about the extent of the interest rate hikes from the Fed can be expected in its September meeting. Some believe it can be 75 basis points, while others think 50bps is more likely.
Fed funds futures traders have priced in a 60.5% possibility of a 75bps increase, while a 39.5% possibility of a 50bps has been priced in.
Analysts said that the market was whipsawing between ultra-dovish and ultra-hawkish stances at the banking symposium in Jackson Hole, Wyoming.
Indexes rise
There was a 0.18% rise in the Dow Jones Industrial Average, while a 0.29% gain was recorded in the S&P 500.
As for the Nasdaq Composite, it also climbed by 0.41%. There was a rise in all 11 sectors of the S&P 500 index and small cap stocks were also able to record gains.
In European markets, the continent-wide STOXX 600 index rose 0.16%, while a 0.02% gain was recorded in the MSCI’s index of global shares.
The euro came down to a low of two decades before going up by 0.05% to reach $0.9972. A 0.037% gain was also seen in the US dollar index.
Economic data for the day highlighted that while there was a rise in new orders for capital goods made in the US, they climbed at a pace slower than the previous one.
This suggested that business spending on equipment that had contracted in the second quarter may not rebound as quickly. Volatile trading also saw oil prices climb.