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We understand the importance of keeping up with US Treasury yields and the dollar, especially after the Federal Reserve’s recent announcement. At an economic conference in Jackson Hole, Wyoming, Fed chair Jay Powell emphasized that US inflation remains too high, signaling the need for the central bank to maintain or raise interest rates. As investors anticipate higher rates, the dollar gained 0.3% against a basket of currencies, on track to reach its highest closing level since March. While Wall Street’s benchmark S&P 500 rose 0.1%, the tech-focused Nasdaq Composite fell 0.1%.
The sell-off in US government bonds continued, leading to a 16-year high in yields on long-term debt earlier this week. Yields on two-year US Treasuries rose by 0.05 percentage points to 5.07%. Florian Ielpo, head of macro at Lombard Odier Investment Managers, commented, “Only two scenarios remain possible from the Fed’s perspective. Either to keep rates constant for a long period of time or hike rates more if needed. Cutting rates is clearly out of the question at the moment.”
In recent weeks, market participants have shifted their beliefs regarding the Federal Reserve’s monetary policy. Initially, many believed that the Fed had completed its rate tightening cycle. However, due to signs of a tight labor market and robust consumer spending, some traders now anticipate another tightening round this autumn. Boston Fed president Susan Collins also acknowledged the possibility of further rate increments.
In Europe, the Stoxx Europe 600 index ended the day flat, despite early advances driven by firm commodity prices. Brent crude, the international benchmark, and US equivalent West Texas Intermediate both saw an increase of 0.7%. However, oil prices remain under pressure as concerns over China’s economic outlook and increasing interest rates raise doubts about future demand for the fossil fuel.
Asian markets followed the downward trend set by Wall Street, with Hong Kong’s Hang Seng index falling 1.4%, China’s CSI 300 dropping 0.4%, and Japan’s Topix shedding 0.9%.
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