US stocks and bond prices rise as traders assess rate outlook

US stocks and bond prices rise as traders assess rate outlook

U.S. stocks ended their recent losing streak on Wednesday as government bond prices rose despite fresh warnings of sharp interest rate hikes.

The tech-heavy Nasdaq Composite index jumped 2.1 cents for its first daily gain of the month, and the broader S&P 500 index rose 1.8%.

In bond markets, the yield on the benchmark 10-year US Treasury – considered a proxy for global borrowing costs – fell 0.08 percentage points to 3.26%. Yields fall when prices rise.

Treasuries had sold in the previous session after a positive survey of the services industry in the world’s largest economy fueled expectations that the Federal Reserve would continue to tighten monetary policy aggressively.

Wednesday’s rebound came despite further hawkish statements from several senior central bankers. Thomas Barkin, chairman of the Richmond branch of the Fed, told the Financial Times that the central bank needs to raise interest rates to a level that restricts economic activity “until we are really convinced that we have brought inflation under control.

Meanwhile, Fed Vice Chairman Lael Brainard told a conference in New York that “we’re here for as long as it takes to bring inflation down,” and the Wall Street Journal reported. reported that the central bank was “on track” for a third straight rate hike of 0.75 percentage points at its next policy meeting later this month.

Futures markets were pricing in a 79% chance of a 0.75 percentage point rise, down from 75% the day before. The Fed’s current target range is between 2.25% and 2.5%.

Elsewhere, short-term UK gilts also rebounded after a sell-off on Tuesday, with the two-year yield slipping 0.14 percentage points to 2.98%.

The gilt price hike came as Britain’s new Prime Minister Liz Truss was set to announce a package this week aimed at easing the pressure of soaring energy prices on households and businesses, which which, according to some analysts, could reduce inflationary pressures in the short term.

“I think it’s a short-term rally,” said James Athey, chief investment officer at Abrn. “Generally the gilt setup looks very precarious,” he added, citing the Bank of England’s struggle to contain inflation.

BoE chief economist Huw Pill told MPs on the House of Commons Treasury Select Committee on Wednesday that Truss’s plans for an energy bill freeze were likely to force the central bank to raise interest rates. interest despite the fall in the inflation rate in the coming months. .

Movements in bond markets on Wednesday also followed a disappointing trade release from China, showing it exported less than expected in August. Investors have been scrutinizing economic data in recent months for clues about the extent to which central banks around the world will turn the screw on monetary policy in the face of a prolonged downturn.

In China, exports rose 7.1% year-on-year last month, compared with growth of 18% in July. Economists polled by Reuters had forecast an expansion of 12.8%. The figures were a “sign that slowing global growth and normalizing consumption patterns are weighing on demand for Chinese goods,” wrote Sheana Yue, China economist at Capital Economics.

A separate report showed that German industrial production contracted 0.3% on a monthly basis in July, compared with growth of 0.8% the previous month. Economists had anticipated a contraction of 0.5%.

The European Central Bank is due to announce its own monetary policy decision on Thursday. Several Wall Street banks said they expected borrowing costs to rise by a whopping 0.75 percentage points. In July, the ECB raised rates for the first time in more than a decade by 0.5 percentage points sharper than expected to zero.

But analysts are divided on how far and how quickly the ECB will move, with some worried that higher rates could hurt growth in the region. Matteo Cominetta, senior economist at the Barings Investment Institute, forecast a rise of 0.75 percentage points on Thursday, followed by smaller increases in October and December.

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

The European Stoxx 600 stock index closed down 0.6%. The Hong Kong Hang Seng closed down 0.8%.

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