Treasury Yields Rise and Stocks Extend Losses

Barry Adams
29 Aug, 2022
New York City

Stocks extended losses after Friday's selloff and bond yields rose as central bankers mount a concerted campaign to lift rates. 

Benchmark indexes eased as investors digested Friday's comments from the Federal Reserve chief and prepared for higher rates at the remaining two meetings of the policymakers in the year. 

Bond yields advanced in the U.S. and Europe and markets are anticipating more comments from central bankers this week ahead of  the U.S. payroll report on Friday. 

Across the Atlantic, policymakers in Europe also accelerated the campaign for higher rates ahead of the next meeting in less than two weeks. 

Eight-week long U.S. market rally from the lows of mid-June was powered by investors hoping economic soft landing and declining interest rates next year. 

However, those hopes were dashed after the Fed chief forcefully reiterated that the inflation is too high and the central bank will take forceful measures as long as necessary to cool down the rapid price increases. 

The strong message sent a clear signal that the Fed may dip the economy in recession if necessary to cool down the high inflation to its preferred target rate of 2%. 

The S&P 500 index declined 0.7% to 4,030.51 and the Nasdaq Composite index dropped 1.0% to 12,017.67. 

Tech stocks led the decliners in a broad selloff for the second day but the energy complex stock advanced after crude oil prices continued to advance on tight demand supply conditions. 

The natural gas prices in Europe are still running nine times, yes nine-fold, higher to the U.S. prices on the persistent worries of Russian supply in the coming months. 

Futures of crude oil rose $3.88 to $96.94 a barrel and natural gas advanced 2 cents to $9.35 a British thermal unit. 

The yield on 10-year Treasury notes inched up to 3.11% and two-year notes rose to a 15-year record high of 3.41%

In trading on Wall Street, stocks lacked direction in morning trading but sell overwhelmed buy orders. 

Microsoft, Alphabet, Amazon.com, and Apple declined between 0.5% and 1.3%. 

Exxon Mobil, Marathon Oil, Hess Corp, and Valero Energy rose between 2% and 4%. 

Moderna Inc increased 1.2% to $138.43 after Swiss regulators approved the company's latest vaccine that targets the omicron variant. 

Walmart Inc rose 1.4% to $133.49 and the retailer offered to acquire the remaining stake in the South Africa-based Massmart for $378 million. 

Walmart's offer for the 47% stake of Massmart is 53% higher than Friday's close price. 

Etsy Inc increased 0.8% to $105.17 and the online platform operator tightened its seller's account and bank account information. 

Pinduoduo Inc soared 16.6% to $67.14 after the China-based online commerce platform operator reported better-than-expected quarterly results. 

European Markets Brace for Rate Hikes 

European markets extended Friday's losses and the worries of faster and larger rate hikes in the euro zone. 

Bond yields in the eurozone rose after leading European policymakers said immediate rate hikes are necessary to cool inflation even at the risk of tipping the economy into a recession. 

Isabel Schnabel, a German economist and a member of the European Central Bank, stressed in a comment directed to other members to signal their determination to bring inflation back to target quickly. 

Olli Rehn, another member of the governing council, said that the central bank should act now because "high inflation is spreading in the economy" and "time to act is now and manage the inflation expectations and keep it anchored to target rate." 

The ECB governing council member Francois Villeroy and policymaker Martins Kazaks also hinted at aggressive policy tightening at the next rate decision meeting. 

The European Central Bank is scheduled to meet on September 8 and economists are anticipating a rate increase of either 50 or 75 basis points. 

The yield on the German government 10-year bunds rose to 1.506% and the yield on 2-year U.K. government bonds edged lower to 2.797%. 

The yield on 10-year Italian government bonds yield rose to 3.8% and on French bonds of similar maturities edged up to 2.12%.  

The DAX index decreased 0.6% to 12,892.22, the CAC-40 index dropped 0.8% to 6,222.28, and the FTSE 100 index eased 0.7% to 7,427.31. 

The euro held firm in parity with the U.S. dollar and the British pound edged lower to $1.17, only 4 cents shy of its record low in nearly four decades, as the inflation continues to accelerate in the island nation. 

The British pound is expected to decline more on the rising energy subsidies to households and dent bigger hole in the government finances. 

In stock trading, benchmark indexes opened lower and continued to slide more after the weak trading in Jew York. 

Popular indexes trimmed losses near the end of the session but closed down for the day. 

Tech stocks led the decliners with STMicroelectronics and Infineon Technologies dropped between 3% and 4%. 

Valneva SE declined 0.4% to 9.22 euros and the French drug maker reported positive late stage trial results for its Covid-19 vaccine with booster effects. 

The Swiss Market index fell 1.1%or 121.72 points 10,942.16 and financials were among the leading decliners. 

Credit Suisse, UBS, Givaudan, Alcon, and Richemont fell between 2% and 4%.