US stock and bond prices rise as traders gauge outlook for rates

U.S. stocks started their recent losing streak on Wednesday, while government bond prices rose despite fresh warnings of major interest rate hikes.

The tech-heavy Nasdaq Composite added 2.1% for its first daily gain of the month and the broader S&P 500 gained 1.8%.

In the bond market, the yield on the benchmark 10-year US Treasury note – considered a proxy for borrowing costs around the world – fell 0.08 percentage points to 3.26%. Output decreases as price increases.

Treasuries sold off in the previous session after a positive survey of the world’s largest economy’s services sector raised expectations that the Federal Reserve would continue to tighten its grip on policy. currency.

Wednesday’s rally came despite further hawkish statements from several senior central bank presidents. Thomas Barkin, chairman of the Richmond branch of the Fed, told the Financial Times that the central bank must raise interest rates to a level that would limit economic activity “until we truly believe we have bottomed out inflation”.

Meanwhile, Fed Vice President Lael Brainard tell a conference in New York that “we’re in it as long as inflation comes down” and The Wall Street Journal reported that the central bank is “on the road” towards a second 0.75 percentage point rate hike. three in a row at the next policy meeting. at the end of this month.

The futures market is pricing 79% likely to gain 0.75 percentage points, up from 75% the day before. The Fed’s current target range is between 2.25% and 2.5%.

Elsewhere, UK short-term gilts also recovered from Tuesday’s sell-off, with two-year yields falling 0.14 percentage points to 2.98 per cent.

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 percent month on month in July, compared with a 0.8 percent 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 for 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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