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A massive bond selloff sent the benchmark 10-year rate briefly above 1.5% – a level not seen since June. This prompted the high-tech Nasdaq 100 from large companies such as Apple Inc. and Microsoft Corp. to underperform the major stock indexes on Monday. Meanwhile, economically sensitive companies – like small caps, energy, and financial stocks – have gained ground.
Traders bet on a rate hike after Fed Chairman Jerome Powell said the central bank could start cutting asset purchases in November, while officials updated their forecast – showing that half of them would see a tightening by the end of 2022. A surge in Treasury yields added to concerns about high valuations of stocks, especially in the tech sector, which fueled the market recovery bullish.
“Yields are rising sharply, reflecting investors’ expectations for monetary tightening amid high inflationary pressures,” said Fawad Razaqzada, analyst at ThinkMarkets. “If yields go higher, it could weigh heavily on overexploited growth stocks in the tech sector, which have low dividend yields. “
For Razaqzada, investors may prefer the relative safety of government debt and fixed coupon payments rather than buying heavily overvalued stocks, just as the Fed begins to reduce the pace of its asset purchases.
US central bank must maintain loose monetary policy to raise public inflation expectations even after current crisis of price pressures from supply chain disruptions fades, Fed Chairman said Bank of Chicago, Charles Evans.
House Democrats are heading for a showdown this week over President Joe Biden’s economic agenda, with a vote expected on a $ 550 billion infrastructure package that has split the caucus in half and even more negotiations over a broader tax and spending plan.
Elsewhere, oil was trading at nearly $ 75 a barrel, a sign that the crude market is tightening amid the global energy crisis. Prices are expected to continue to climb as supply struggles to catch up with rapidly rising demand, according to Ben Luckock, co-head of oil trading at Trafigura Group. Goldman Sachs Group Inc. said Brent could hit $ 90 a barrel by the end of the year as the market is more loss-making than many realize.
Some highlights of the company:
- Amazon.com Inc.’s price target was lowered at Morgan Stanley, who wrote that the online retailer’s profits could be under pressure due to increased headcount and higher wages.
- Lordstown Motors Corp. was demoted to sell neutral to Goldman Sachs Group Inc., which cited a number of headwinds for the electric vehicle company.
Read: China promises new restrictions on ‘disorderly expansion’ of tech companies
Here are some events to watch this week:
- Fed Chairman Jerome Powell and Treasury Secretary Janet Yellen to testify at a Senate Banking Committee hearing Tuesday
- European Central Bank President Christine Lagarde speaks at the ECB Central Bank Forum on Tuesday
- Japan’s ruling party votes to elect leader on Wednesday
- Central bank chiefs Andrew Bailey (BOE), Haruhiko Kuroda (BOJ), Christine Lagarde (ECB) and Jerome Powell (Fed) participate in an ECB forum panel on Wednesday
- House Financial Services Committee hearing on the Fed and the Treasury’s response to the pandemic, Thursday
- China Caixin Manufacturing PMI, Non-Manufacturing PMI, Thursday
- Univ. Michigan sentiment, ISM manufacturing, US construction spending, spending / personal income on Friday
For more market analysis, read our MLIV blog.
Some of the main movements in the markets:
- The S&P 500 fell 0.3% at 9:55 a.m. New York time
- The Nasdaq 100 fell 1.3%
- The Dow Jones Industrial Average rose 0.6%
- The Stoxx Europe 600 has changed little
- The MSCI World Index fell 0.2%
- The Russell 2000 index rose 0.8%
- The Bloomberg Dollar Spot Index changed little
- The euro fell 0.2% to $ 1.1696
- The British pound rose 0.2% to $ 1.3701
- The Japanese yen fell 0.1% to 110.88 per dollar
- The yield on 10-year treasury bills rose three basis points to 1.48%
- The German 10-year yield was little changed at -0.22%
- UK 10-year yield rose three basis points to 0.95%
- West Texas Intermediate crude rose 2.2% to $ 75.61 a barrel
- Gold futures rose 0.3% to $ 1,757 an ounce
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