US Treasuries rallied as UK gilts surged after the Bank of England said it would buy long-dated government bonds in whatever quantities were needed to restore order to the market. US stocks attempted to stage a rebound, even after Federal Reserve Bank of Atlanta President Raphael Bostic reinforced the hawkish stance his colleagues hammered home this week.
(Bloomberg) — US Treasuries rallied as UK gilts surged after the Bank of England said it would buy long-dated government bonds in whatever quantities were needed to restore order to the market.
US stocks attempted to stage a rebound, even after Federal Reserve Bank of Atlanta President Raphael Bostic reinforced the hawkish stance his colleagues hammered home this week.
US Treasury yields declined, with the benchmark 10-year rate around 3.78% after topping 4%.
The yield on 30-year UK gilts plummeted as much as 107 basis points to below 3.92%. The S&P 500 rose as much as 1.1%, after a six-day rout sparked by the most aggressive path of interest-rate hikes by the Fed since the 1980s.
Several Fed officials this week reiterated that more rate hikes are needed to tame inflation and that risks to the economy remain elevated, with Atlanta Fed’s Bostic adding to the chorus on Wednesday.
Global markets are still reeling from the tumult triggered last week by the Fed’s third jumbo hike and the UK’s new prime minister unveiling sweeping tax cuts that threaten to add to inflationary pressures.
“A relief rally can be expected given markets are nearing oversold conditions, while positioning and sentiment have become distinctly short and bearish,” said Cameron Dawson, chief investment officer at Newedge Wealth.
“But any rally will likely be met with skepticism given the dual headwinds of rapidly slowing global growth, pressuring earnings, and increasingly tight liquidity, pressuring valuations.”
Stocks may also be rising because the markets have priced in the Fed’s hawkishness, according to Adrian Helfert, chief investment officer of multi-asset strategies at Westwood Holdings Group.
“It’s harder for the central bank and the speakers to say much more — short of saying that they’re going to start hiking by a hundred basis points for the next several meetings,” he said.
“Maybe the market is at least now believing what the Fed is saying.”
Geopolitical tensions also continue to weigh on sentiment. Natural gas prices in Europe surged after Russia said it may cut off supplies via Ukraine and the German Navy was deployed to investigate the suspected sabotage to the Nord Stream pipelines.
While the European Union proposed a new round of sanctions on Russia, the growing exodus of Russians fleeing President Vladimir Putin’s mobilization order is creating turmoil at the borders with neighboring states and stirring fears about potential instability.
In other news, Hurricane Ian rapidly gained strength, with winds just 2 mph away from reaching Category 5 strength, the most powerful category for a storm on the Saffir-Simpson scale, according to the National Hurricane Center.
Orange juice futures soared as a result.
The dollar dropped on Wednesday, but its recent rally brought losses to other currencies, including the euro and onshore yuan, which tumbled to its weakest level since 2008.
A regulatory body guided by the People’s Bank of China urged banks to protect the authority of the yuan fixing.
How much damage is a strong dollar causing? That’s the theme of this week’s MLIV Pulse survey.
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Key events this week:
- Fed’s Mary Daly and Charles Evans speak at events, Wednesday
- Euro zone economic confidence, consumer confidence, Germany CPI, Thursday
- US initial jobless claims, GDP, Thursday
- Fed’s Loretta Mester, Mary Daly speak at events, Thursday
- China PMI, Friday
- Euro zone CPI, unemployment, Friday
- US consumer income , University of Michigan consumer sentiment, Friday
- Fed’s Lael Brainard and John Williams speak, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 rose 0.9% as of 11:07 a.m.
New York time
- The Nasdaq 100 rose 0.6%
- The Dow Jones Industrial Average rose 0.9%
- The Stoxx Europe 600 rose 0.2%
- The MSCI World index fell 0.1%
Currencies
- The Bloomberg Dollar Spot Index fell 0.3%
- The euro rose 0.5% to $0.9638
- The British pound rose 0.1% to $1.0749
- The Japanese yen rose 0.2% to 144.51 per dollar
Cryptocurrencies
- Bitcoin rose 1.9% to $19,429.68
- Ether rose 0.3% to $1,328.3
Bonds
- The yield on 10-year Treasuries declined 17 basis points to 3.78%
- Germany’s 10-year yield declined six basis points to 2.17%
- Britain’s 10-year yield declined 47 basis points to 4.04%
Commodities
- West Texas Intermediate crude rose 3% to $80.87 a barrel
- Gold futures rose 1.4% to $1,659.10 an ounce
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