Equities Decline as U.S. Treasury Yields and Dollar Remain High – Reuters

By Sinéad Carew

NEW YORK (Reuters) – A global equity index saw a decline of over 1% on Tuesday during a volatile trading session. Concerns over prolonged high interest rates diminished the appetite for riskier assets, while the benchmark U.S. Treasury yield hovered near levels not seen in 16 years.

The index reached a 10-month peak, while the Japanese yen approached a critical value that could prompt Japanese officials to intervene to stabilize the currency.

Major stock indexes on Wall Street followed the downward trend set by Asian and European markets as investors continued to process last week’s signal from the Federal Reserve indicating that rates would remain elevated for an extended period, surpassing earlier expectations.

Minneapolis Fed President Neel Kashkari expressed optimism on Tuesday about the likelihood of a "soft landing" for the U.S. economy but also indicated a 40% probability that the Fed might need to implement "meaningful" rate hikes to combat inflation.

Market anxiety was further heightened by the looming threat of a government shutdown. The Republican-controlled House of Representatives is advocating for significant spending cuts this week, which, although unlikely to become law, could lead to a partial shutdown affecting hundreds of thousands of federal workers and halting public services.

The negative sentiment was also fueled by rising oil prices and an ongoing strike by auto workers that began in Detroit on September 15. Investors remained attentive to an important inflation measure, the core Personal Consumption Expenditures (PCE) price index, expected to be released on Friday.

"As long as rates keep pushing higher, that’s going to keep the market nervous," remarked Jack Janasiewicz, portfolio manager at Natixis Investment Managers Solutions. "It feels like this dark cloud is hovering over the market until we get to the PCE print."

As the trading session progressed, losses in equities deepened.

"The concerns about ongoing high rates have been weighing on stocks for approximately two months since the peak at the end of July," noted Michael James, managing director of equity trading at Wedbush Securities in Los Angeles. "The downward price action becomes self-fulfilling; when those hoping for a rebound don’t see it, frustration sets in."

The Dow Jones Industrial Average fell 388 points, or 1.14%, closing at 33,618.88. The S&P 500 lost 63.91 points, or 1.47%, ending at 4,273.53, and the Nasdaq Composite dropped 207.71 points, or 1.57%, to 13,063.61.

MSCI’s global equity gauge decreased by 1.24%, while the pan-European index closed down 0.61%.

In the Treasury market, the benchmark 10-year notes increased by 0.6 basis points to yield 4.548%. The 30-year bond was last up 2.4 basis points, yielding 4.6834%. The two-year note was up 0.3 basis points to yield 5.1336%.

On the currency front, the dollar index rose by 0.198%. The euro fell by 0.17% to $1.0572, while the British pound traded at $1.2157, down 0.44% for the day.

The Japanese yen weakened by 0.09% against the dollar, trading at 149.03 per dollar. The dollar’s strength versus the yen has kept traders watchful for possible intervention, especially after Finance Minister Shunichi Suzuki stated that no options were off the table.

The 150 yen per dollar mark is perceived by financial markets as a crucial threshold that would prompt action from Japanese authorities, similar to interventions from the previous year.

Oil prices closed higher after touching a two-week low earlier in the session, as investors weighed tighter supply expectations against demand concerns linked to an uncertain economic outlook. WTI crude rose by 0.79% to $90.39 per barrel, and Brent crude climbed 0.72% to $93.96.