Bond Yields Rise Ahead of Rate Decision, Stocks Fall

Barry Adams
20 Sep, 2022
New York City

Stocks lacked direction ahead of the Fed's rate decision tomorrow. 

Investors anticipate the Fed to lift rates by at least 50 basis points and sky-high inflation shows no sign of cooling down. 

The Fed is scheduled to announce its rate decision at 2:00 p.m. Wednesday and investors are awaiting insights to the U.S. economy and future rate hikes path. 

The yield on 2-year Treasury notes rose to 15-year high as investors debate the size of the next rate hike tomorrow. 

The yield on 2-year Treasury notes inched higher to 3.95%, 10-year notes traded up to 3.59% and 30-year bond jumped to 3.57%. 

Energy prices traded lower on the lingering worries of global demand and rising supply from the U.S. shale oil fields. 

Crude oil declined $1.37 to $84.36 a barrel and natural gas prices eased 3 cents to $7.71 a thermal unit. 

 

U.S. Indexes Fall 

U.S. stocks lacked direction ahead of rate decision tomorrow. Investors worry that interest rates may have to go as high as 4.75% and stay at that level for another one year before the inflation cools to the Fed's target rate of 2%. 

Interest rates have been rising and staying above the Fed's target rate for 24 months in a row. 

The S&P 500 index fell 1.0% to 3,861.63 and the Nasdaq Composite index dropped 0.7% to 11,875.12. 

 

Movers: Oxford Industries, Humana

Oxford Industries surged 6.6% to $95.98 after the parent of Tommy Bahama and Lilly Pulitzer lifted its guidance and announced an acquisition. 

Oxford agreed to acquire Johnny Was for $270 million and the acquisition is expected to be earnings accretive in fiscal 2022.   

The company also increased its guidance for the third quarter and full year of fiscal 2022. 

Humana Inc gained 0.7% to $504.66 and traded at a record high a day after the health insurer revised higher its earnings outlook. 

The company lifted its fiscal 2022 ending in December earnings per share outlook to $23.08 from its previous estimate of $20.30. 

 

U.S. Housing Starts Rise, Permits Fall 

Housing starts jumped 12.2% in August from July to a seasonally adjusted rate of 1.575 million units, the Commerce Department reported Tuesday. 

On an annual basis housing starts fell 0.1%. 

Single-family housing starts increased 3.4% to 935,000 units and multi-family home starts surged 28.6% to 621,000. 

Building permits dropped 10% from a year ago and fell 14.4% from the previous month to a seasonally adjusted rate of 1.517 million units . 

 

European Indexes Fall Tracking U.S. Markets 

Benchmark indexes across Europe declined after German producer prices rose at a faster pace in August and Sweden lifted its rate by larger-than-expected amount. 

Benchmark indexes opened higher and began the decline after one hour of trading and fell to new lows every next hour and closed at or near the lows of the day. 

Investor sentiment was driven by the persistent uncertainties surrounding energy prices and future rate size increases, 

Investors are increasingly factoring the possibilities of a recession next year and higher rates lasting well into 2024. 

The DAX index fell 1.0% to 12,670.83, the CAC-40 index dropped 1.4% to 5,979.46 and the FTSE 100 index declined 0.6% to 7,192.66. 

 

German PPI Surges

In Europe, benchmark indexes declined after German producer prices rose at a faster pace in August and Sweden lifted its rate by larger-than-expected amount. 

Producer prices in Germany soared at an annual rate of 45.8% in August after rising at 37.2% in July, the Destatis said Tuesday. 

On a monthly basis, producer prices rose at a record rate of 7.9% after rising at 5.3% in July. 

 

Sweden Lifts Rates by 1.0%, More Hikes to Follow 

Sweden's Riksbank lifted its key lending rate by 1.0% or 100 basis points to 1.75%, higher than 75 basis points expected by economists. 

The central bank also held out for higher rates over the next six months and the accompanying statement added that the monetary policy will adjust to bring down the current high inflation rate to 2% by 2025. 

The central bank estimated rates to rise to 2.25% by the year-end and inflation to hover near 8.6% in 2022 and decline to 8.5% in 2023 before declining to 2% in 2025.    

 

Asian Markets Closed Higher, China Rates Stable  

Asian markets closed higher following higher closing in New York in the overnight trading. 

The People's Bank of China left its 1-year and 5-year lending rates unrevised, matching the market expectations. 

The central bank left the 1-year rate at 3.65% and the 5-year rate at 4.3% after trimming rates last month from 3.70% and 4.45% respectively.  

The Nikkei 225 index in Tokyo jumped 0.4% and in Hong Kong added 1.2%. 

The Sensex index in India gained 1.0% on the expectations of a jump in consumer demand during the upcoming festival season and the rupee held stable at 79.89 despite the rising dollar.