Bond Yields Soar And Equity Futures Soar After Powell Says The Fed Is Ready To Be More Aggressive

Yields on US Treasuries soared and stock futures soared as investors digested the more aggressive tone of Federal Reserve Chairman Jerome Powell on inflation control.

S & P 500 and Dow Jones Industrial Average futures rose 0.3% and 0.5% on Tuesday, respectively. Technology-focused Nasdaq-100 contracts increased 0.2%. Major US stock indexes fell on Monday after Powell said he was ready to raise interest rates in half-percentage steps if the Fed needed to curb inflation.

In the US Treasury market, government bond sales have surged, with 10-year Treasury yields rising from 2.315% on Monday to 2.341%. This shows the highest yield since May 2019, before the Covid-19 pandemic disrupted financial markets. Yields go up as bond prices go down.

Equities, bonds, commodities and currencies plummeted last month’s volatility as investors sought to assess the economic downturn from Russia’s war in Ukraine. Today, many investors are afraid that the war could sustain inflation and impede economic growth in the United States and Europe.

The trader worked on the floor of the New York Stock Exchange on Monday.

Photo: BRENDAN MCDERMID / REUTERS

But this week, when Powell spoke on Monday, investors were thrown a new curve ball, hitting a tougher tone than what the Fed used to raise interest rates from near zero last week. He repeatedly emphasized the uncertainties faced by central banks, stating that authorities are ready to shift their policies in a more destructive direction.

“Message from [Fed] Last week’s meeting is that they will be tightened [monetary policy] But the US economy is resilient enough to withstand it, “said Huw Roberts, Head of Analysis at data analytics firm Quant Insights. “The stock market has chosen to emphasize the resilience part of the economy.”

He said yesterday’s comments rattled some of those expectations. “The big variable now is the economic growth aspect of things,” Roberts continued.

Many investors measure the spread between short-term and long-term interest rates and carefully watch the so-called yield curve, which is often seen as a strong indicator of sentiment about the outlook for economic growth. Recently, there has been growing concern that the yield gap between short-term and long-term government bonds has narrowed and the bond market is approaching signs of a potential recession.

The Treasury yield for two years, which is particularly sensitive to changes in monetary policy, rose from 2.123% on Monday to 2.164% on Tuesday.

To better read the US economic situation, Tuesday morning investors analyze data from the Federal Reserve Bank of Richmond on manufacturing activities. Economic data scheduled for 10 am ET is expected to record an increase from the previous month.

Banks’ share of premarket transactions in New York increased, following similar movements in Europe. In the United States, Morgan Stanley added 1% and Citigroup added 0.7%. In Europe, Societe Generale rose 1.8% and Deutsche Bank rose 3.8%.

In other sectors, Nike rose 6% in pre-market trading in New York after reporting earnings that exceeded analysts’ expectations. Okta’s share fell 7.1% after the hacking group posted screenshots showing that they had access to Okta.com admins and other systems. The company said Tuesday that preliminary investigations found no evidence of ongoing malicious activity, and that the screenshots were likely related to a security incident in January.

In the energy market, international benchmark Brent crude oil futures rose 0.6% to $ 116.34 a barrel in volatile trading sessions. Last week, Brent prices fell below $ 100 before reversing and rising. Support for Russia’s oil purchase ban throughout the European Union is growing within the block, raising the possibility of further volatility in the future.

In Europe, Pangea’s Stocks Europe 600 increased by 0.5% to the pace of rising five times in a row.

In Asia, key indices have also risen significantly. The Hang Seng Index in Hong Kong rose about 3.2% and the Nikkei 225 in Japan rose 1.5%. China’s Shanghai Composite rose 0.2%.

Write to Caitlin McCabe ([email protected])