The technology-focused Nasdaq Composite Index closed 0.5% lower, while the Wall Street S&P 500 Index closed 0.2% higher. Share indicators ended Monday’s session down 1.3 percent and 0.3 percent respectively. The FTSE All World Index ended lower for the third day in a row, down 0.2%.
Since fast-growing tech stocks are often more sensitive to changes in interest rate policy, they have evolved significantly as traders began betting on a more hawkish US central bank policy under Powell.
Brian Nick, chief investment strategist at Nuveen, said that despite a brief liquidation following the announcement of Powell’s appointment on Monday, there was “no sense of panic or that the markets were hoping for a result. different “.
Fed funds futures – a market for hedging or betting on future movements in interest rates – indicate about a 75% chance that the central bank will raise U.S. interest rates from their all-time lows by June of next year, up from around 60% per month. there, according to data compiled by CME Group.
This change was reflected in short-term US government bonds. The yield on two-year US Treasuries hit their highest level since March of last year on Tuesday morning, hitting 0.64%. At the end of the day in New York, it was hovering slightly below that level at 0.61 percent. The yield on debt, sensitive to fluctuations in monetary policy expectations, was below 0.3% in early October.
Longer-term bond yields have been more stable, reflecting expectations that the surge in inflation that is pushing central banks around the world to begin to suppress their pandemic stimulus efforts will cool down in the medium term. The 10-year Treasury yield rose 0.06 percentage point on Tuesday to 1.68%.
“If short-term rates go up and long-term rates don’t move or fall, that’s a sign the market thinks the Fed made a mistake,” Nick said.
JPMorgan strategists said that, overall, “Powell’s reappointment reduces uncertainty and therefore should be positive for risky assets.”
“Historically, markets have been trying to test new Fed chairs, so we believe this outcome will be avoided,” the Wall Street bank said in a note to clients. “In addition, Powell’s experience in the second half of 2018, where the tightening of policy contributed to the sharp decline in the market until the end of the year, will likely lead to a cautious approach to take-off next year. “
Also on Tuesday, the Treasury Department auctioned off $ 59 billion in new seven-year notes to meet strong demand. The yield on the seven-year note was its highest since February 2020 before the auction, which supported demand, said Tom Simons, an economist at Jefferies.
In Europe, the regional Stoxx 600 index closed down 1.3%. Several EU countries were forced last week to reimpose pandemic restrictions due to the increase in the number of coronavirus cases, which led to multiple protests over the weekend.
The introduction of new restrictions in parts of Europe had “shaken a key market belief, as it was believed that developed economies would not return to this path,” said Paul Donovan, chief economist at UBS Wealth Management.
Asian stocks edged down on Tuesday, with the MSCI All Country Asia Pacific Index falling 0.4% in US dollars. Hong Kong’s Hang Seng stock index fell 1.2 percent.
In foreign currencies, the euro hit its lowest level against the dollar since July 2020 at $ 1.123 on Tuesday.
The Turkish lira hit its weakest point against the dollar after the country’s President Recep Tayyip Erdogan hailed last week’s 1 percentage point drop and said his country was waging an “economic war of” independence “. Last week Turkey cut its interest rate to 15 percent, despite annual inflation of 20 percent.
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Robert Armstrong dissects the most important market trends and explains how the best minds on Wall Street are reacting to them. Sign up here to receive the newsletter directly to your inbox every day of the week