US Treasury yields remained close to several-year highs on Tuesday, while stock markets rebounded from the previous session’s defeat in the face of signs that central bank action to curb inflation would drop the world economy in recession.
Canada’s leading stock index opened higher, a day after falling back into correction territory, helped by gains in energy stocks due to rising crude oil prices.
At 9:31 a.m. ET, the Toronto Stock Exchange’s S & P / TSX Composite Index rose 92.96 points, or 0.47%, to 19,835.52.
On Monday, the index fell again in correction territory, ending with a fall of 2.6% to 19,742.56, leaving it 10.6% below the maximum closing record that rose in March .
A correction is confirmed when an index closes 10% below its maximum closing record. The TSX did so on May 11 and 12, but then recovered.
Money markets see a 75% chance that the Bank of Canada will raise interest rates by three-quarters of a percentage point next month, which would be the biggest rise since August 1998, and expect rates to reach about 3.9% next year.
Just two weeks ago, investors were expecting the so-called 3% terminal rate.
Wall Street’s major indexes also opened higher on Tuesday, a day after the S&P 500 confirmed it was in a bearish market as investors eased a smaller-than-expected rise in base prices in the stock market. producer.
The Dow Jones Industrial Average rose 75.60 points, or 0.25%, at the opening to 30,592.34.
The S&P 500 opened up 13.89 points, or 0.37%, at 3,763.52, while the Nasdaq Composite gained 88.20 points, or 0.82%, to 10,897.43 in the bell opening.
The benchmark S&P 500 closed 20% below its record high on Monday, January 3, while a key portion of the Treasury yield curve reversed for the first time since April amid growing fears than the Federal Reserve’s attempts to control rising inflation. it will affect the economy.
Sales pressure seemed to ease in the first few operations. Market heavyweights such as Apple Inc., Amazon, Microsoft Corp. and Tesla rose between 0.7% and 0.9%.
Oracle Corp. earned another profit after posting optimistic quarterly results on demand for its products in the cloud. Its shares rose 12.1%.
U.S. delivery company FedEx Corp. increased its quarterly dividend by more than 50% to $ 1.15 per share on Tuesday, sending its shares 10.9% higher in early trading.
“There may be an opportunity to rest a little from the aggressive expectations that exist, and you can see that in terms of how the markets are moving today,” said Edward Park, investment director at Brooks Macdonald Asset Management in London.
“Markets will no doubt be hectic.”
Expectations are rising that central banks, especially the US Federal Reserve, will have to accelerate the tightening of policies to curb inflation, which could lead to an economic recession. Markets now see the Fed’s rate hike cycle peaking at around 4%, up from 3% last month.
These expectations on Monday raised the cost of 10-year loans, the benchmark interest rate for the global economy, to a high of 3.44% in 2011.
Although yields fell around 3.3% on Tuesday, they remain about 180 basis points (bp) above the levels at the end of 2021.
With the Fed set to begin a two-day meeting later on Tuesday, markets were waiting to see if they could raise rates by about 75 bp higher than expected, a possibility marked by several investment banks, including Goldman Sachs .
This move, which would be the biggest increase since 1994, also has almost the full price for Wednesday.
This change in prices has affected assets that benefited from very low interest rates: equities, cryptocurrencies, unsecured bonds and emerging markets.
“Simply put, when we see a monetary tightening in the order of what we are seeing globally, something is going to break,” said Timothy Graf, head of macro strategy at EMEA on State Street.
“Stock markets reflect the reality of the first-order effect of the most restrictive financial conditions,” said Graf, who predicted that with US stock valuations still above COVID’s time minimums , there will be more pain to come.
“I think there are other shoes to let go of,” he added.
MSCI’s global stock index fell 0.3%, widening the 3.7% drop on Monday, while the pan-European equities index fell 1% to March 2020 lows.
Asian stocks also fell 1%, catching up with Monday’s devastating Wall Street session, when the S&P 500 and Nasdaq indexes lost 4% and 4.7%, respectively.
There was little break for the crypto markets, where bitcoin and ether reached new 18-month lows, reacting to interest rate expectations and the decision by cryptocurrency provider Celsius Network to freeze withdrawals.
Bitcoin, which fell to $ 20,816, has fallen more than 50% this year.
The latest drop in world markets was caused on Friday by US data showing that annual inflation up to May soared by 8.6%.
Subsequent bond sales boosted U.S. yields to two-year highs by more than 50 basis points in two sessions, bringing them above 10-year lending costs on Monday in the so-called reversal curve. omen of recession.
Two-year yields fell to 3.3% on Tuesday, up from a high of 3.43%, the highest since 2007. The yield curve remains flat, reflecting concerns about the global economy, especially because commodity prices offer little respite.
Brent crude oil futures rose above $ 123 a barrel, supported by scarce oil supply.
Graf of State Street does not see the recession as inevitable, but acknowledged that “monetary tightening and a tightening of real commodity price gains are likely to increase.”
Markets also have to deal with the rise of the dollar to new highs of 20 years against a basket of currencies.
It fell 0.10% on Tuesday, offering a respite to other currencies, but the yen continues to languish in the 24-year lows against the green dollar.
With the Bank of Japan extending bond purchases on Tuesday and unlikely to move from very low-rate policy to its Friday meeting, a yen respite seems unlikely.
“Given that on Wednesday it may see the Fed rise 75 bp and mark more, while the BOJ on Friday will only mark more bond purchases, the yen will not stay at those levels for long. It will get much, much worse.” said Michael Every, Rabobank strategist.
Reuters
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