Yields Rise, Stocks Fall After Service Report, Stronger Dollar Another Hurdle for Global Markets

Barry Adams
06 Sep, 2022
New York City

Stocks on Wall Street lacked direction as investors debated the health of the U.S. economy and the future rate hikes. 

The service sector expanded at a faster pace in August following the jobs report that met investors expectations on Friday. 

The back-to-back two reports highlighted the strength in the economy and also raised the prospects of a larger rate hike at the next meeting of the policymakers. 

The PMI service index of services increased to 56.9 in August from 56.7 in July, the  ISM reported Tuesday. The service index accelerated for the third month in a row after hitting the low 55.3 this year.  

Crude oil prices eased on the expected decline in demand after China imposed tighter restrictions in several cities impacting as many as 30 million people. 

Yesterday, OPEC+ announced 100,000 barrels a day supply cut as demand softens in China and rising supply from Iran and Venezuela. 

The S&P 500 index decreased 0.4% to 3,908.13 and the Nasdaq Composite index declined 0.7% to 11,544,93. 

Futures of crude oil declined 11 cents to $86.83 a barrel and natural gas edged down 74 cents to $8.02 a thermal unit. 

The yield on 10-year Treasury notes rose 6 points to 3.34%, 30-year bonds increased to 3.492%, and 2-year notes advanced to 3.50%.

 

European Markets Rebound, Germany's Factory Orders Fall 

European markets looked beyond weak German factory orders data and gained after energy prices eased and China announced stimulus measures. 

The DAX index gained 0.3% to 12,794.51, the CAC-40 index fell 0.5% to 6,064.11, and the FTSE 100 index fell 0.2% to 7,275.83. 

Germany's factory orders declined at a faster pace in July on the weak domestic and the eurozone demand.  

Factory orders fell 1.1% from the previous month in July Destatis reported Tuesday. 

The June orders were revised to an increase of 0.3%. 

The British pound edged up a fraction and traded near $1.15 after briefly falling near $1.14. 

The incoming prime minister Liz Truss has inherited a weak economy, elevated energy prices, sky-high inflation and general voter apathy. 

With low approval among her party members and even lower vote of confidence from voters, Truss faces challenges on multiple fronts and most political analysts anticipate the country to head to general polls in late 2023 or early 2024.  

The pound is expected to continue its slide and sink to a parity with the U.S. dollar. 

Brent crude oil fell 3.3% to $92.59 a barrel and TTF natural gas prices fell 2.5% to 239.47 euros a megawatt hour.    

BP Plc, Shell, BT, National Grid and Pershing Square Holdings fell between 1% and 2%. 

Ashtead Group declined 2.4% to 4,207.o pence despite the industrial equipment rental company posting higher fiscal first quarter revenues and earnings. 

Revenues in the fiscal first quarter 2022 ending in July rose 25% to $2.26 billion and pre-tax net income soared 28% to $527 million. 

Berkeley Group Holdings Plc gained 3.3% to 3,573.0 pence after the company issued a positive outlook for the current financial year. 

In Frankfurt trading, Volkswagen AG rose 6.2% to 194.83 euros after the company said it plans to spin off its sportscar division Porsche AG in a public offering in the next 30 to 60 days. 

 

Asian Markets Struggle to Adjust to Dollar Strength 

Asian markets gave up early losses and closed down after the energy crisis in Europe deepened and ahead of the rate decision in the currency union on Thursday. 

The Nikkei 225 Index closed marginally higher at 27,626.51 and the yen fell 1.8% to a 24-year low of 142.82 against the U.S. dollar. 

The Sensex index in India closed marginally lower after a volatile session. 

The Sensex closed down 48.99 points to 59,196.99 and the Nifty index eased 10.20 points to 17,655.60.

The rupee edged down to 79.81 against the U.S. dollar. 

The benchmark ASX 200 Index fell 0.4% to 6,826.50, while the broader All Ordinaries Index closed 0.3% lower at 7,055.90 after the Reserve Bank of Australia hiked key lending rate by 50 basis points to 2.35% as expected. 

The latest hike follows three increases of similar size in the previous three months and 25 basis points increase in May, lifting the rates to the levels last seen in January 2015. 

The Shanghai Composite Index gained 1.4% to 3,243.45 after China's central bank officials and ministers promised additional stimulus measures to follow the package released five months ago.  

 

China Takes Steps to Support Yuan and Economic Growth 

China announced a slew of stimulus measures to revive the flagging economic growth and arrest the falling yuan.

At a press conference on Monday, officials from ministries, People's Bank of China and National Development and Reform Commission highlighted details of the plan in the third quarter. 

The one trillion yuan or $145 billion plan will focus on more infrastructure spending.  

The People's Bank of China, after the press conference, lowered the foreign currency reserve ratio by 2 percentage points. 

China's yuan closed down to a new two-year low of 6.955 against the U.S. dollar and the currency has fallen for the sixth month in a row.