US bond and equity prices rise as traders assess prospects for rate hikes

U.S. stock and government bond prices rose on Wednesday as traders tried to decipher the message about the future path of monetary policy amid economic gloom.

Wall Street’s broad S&P 500 stock index was up 0.8% in the early afternoon New York, while the Nasdaq Composite, a full set of tech stocks more sensitive to interest rate changes, rose 1 percent. %.

In the bond market, the yield on the 10-year US Treasury note – considered a proxy for borrowing costs around the world – fell 0.06 percentage points to 3.28% due to debt instrument prices. get a raise.

Treasury already exists Sale with UK gilts in the previous session after a positive survey of the service sector of the world’s largest economy raised expectations of the US Federal Reserve’s drastic tightening of monetary policy.

Markets are pricing in the possibility of the Fed raising rates by 0.75 percentage points at its end-of-September meeting, which would mark the third consecutive increase of such magnitude. The Fed’s current target range is between 2.25% and 2.5%.

Thomas Barkin, chairman of the Richmond branch of the Fed, told the Financial Times This week, the US central bank must raise interest rates to a level that limits economic activity “until we truly believe we have brought inflation down”.

Elsewhere, short-term British bonds rebounded on Wednesday, with two-year yields falling 0.15 percentage points to just over 3 percent, while 10-year yields lost ground. 0.07 percentage points down 3.03 percentage points.

The increase in gilded prices comes as newly appointed UK prime minister Liz Truss is poised to announce a package this week to ease the upward pressure on energy prices on households and businesses, something that Some analysts believe that inflation pressures can be reduced in the short term.

“I think it’s a short-term bounce,” said James Athey, chief investment officer at Abrdn. “Overall, equipping gilts feels very precarious,” he added, referring to the Bank of England’s struggle to contain inflation.

Huw Pill, chief economist for the BoE, told MPs on the House Treasury selection committee on Wednesday that Truss’ plan to freeze energy bills is likely to force the central bank to raise interest rates despite lowering the inflation rate in the coming months.

Wednesday’s bond market moves also followed a disappointing trade release from China, which showed it exported less than expected in August. Investors have scrutinized economic data in recent months for clues about the extent to which central banks around the world will initiate monetary policy amid a protracted downturn.

In China, exports rose 7.1% year-on-year compared with an 18% increase in July. Economists polled by Reuters had forecast a 12.8% gain. Sheana Yue, China economist at Capital Economics, writes:

A separate report showed that German industrial output fell 0.3% month on month in July, compared with a 0.8% increase in the previous month. Economists had predicted a 0.5% drop.

The European Central Bank will announce its own monetary policy decision on Thursday. Many Wall Street banks said they expect borrowing costs to rise by 0.75 percentage points. In July, the ECB raised interest rates for the first time in more than a decade, 0.5 percentage points higher than predicted to zero.

But analysts are divided on how far and quickly the ECB will move, with some concerned that higher rates will hurt growth in the region. Matteo Cominetta, senior economist at the Barings Investment Institute, predicts a 0.75 percentage point increase on Thursday, followed by smaller gains in October and December.

“I think they won’t be able to do more than that because when we switch [autumn] evidence of a very deep recession will be clear,” he said.

Europe’s regional Stoxx 600 share index closed down 0.6%. Hong Kong’s Hang Seng closed 0.8% lower.

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