Equities fall further as the rise in US yield unnerves investors

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Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, USA, January 10, 2022. REUTERS / Brendan McDermid

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  • Global equities stumble as the more aggressive Fed is squinting
  • 10-year US Treasury yield hits 1.8%
  • Dollar stuck in range despite rising yields
  • Traders brace for US inflation data, corporate earnings

NEW YORK, Jan. 10 (Reuters) – US equities fell on Monday despite a comeback at the end of the day, as bets that the US Federal Reserve could raise interest rates as soon as March led investors to devalue risky assets and raised the 10th. years Treasury yield up to two years.

Monday’s drop follows a bruised first week of the year when a strong signal from the Fed that it would tighten policy more quickly to tackle inflation and then data showing a strong U.S. job market, nervous investors who had pushed stocks at record levels during the holiday period.

The Dow Jones Industrial Average (.DJI) lost 0.45% and the S&P 500 (.SPX) lost 0.14%.

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Tech stocks, which have soared over the past two years thanks in part to very low interest rates, led the declines earlier in the day, but rallied later in the session leaving the Nasdaq Composite (.IXIC) up by just 0.05%.

The pan-European STOXX 600 index (.STOXX) lost 1.48% and the MSCI index of stocks worldwide (.MIWD00000PUS) fell 0.26%.

“The big story in the first week of the new year was the steady rise in US government bond yields,” said Arthur Hogan, chief market strategist at National Holdings Corp.

Hogan advised investors to invest more in financial, industrial and energy stocks as they are likely to benefit from the strong economic growth expected in the coming months.

Some of the largest Wall Street banks now expect the Federal Reserve to raise interest rates four times this year, and Goldman Sachs (GS.N) sees the Fed begin the process of shrinking its balance sheet as early as July. .

A busy week sees U.S. inflation data coming out on Wednesday, which analysts say could show core inflation rising to its decades-long high of 5.4%, a level that would almost confirm a rise in prices. rates in the US is coming in March. Corporate earnings season also kicks off this week with major US banks reporting from Friday onwards. [

Rate futures now imply a greater than 70% chance of a rise to 0.25% in March and at least two more hikes by year end.

FURTHER TO RUN?

Yields on 10-year U.S. Treasury notes hit a high of 1.8080% in early trading, levels last seen in January 2020, having shot up 25 basis points last week in their biggest move since late 2019. U/S The yield later retreated to 1.7603%.

Real yields

“We think that the increase in long-dated Treasury yields has further to run,” said Nicholas Farr, an economist at Capital Economics.

“Markets may still be underestimating how far the federal funds rate will rise in the next few years, so our forecast is for the 10-year yield to rise by around another 50bp, to 2.25%, by the end of 2023.”

The dollar index edged up 0.17% to 95.957 . The greenback has failed to find significant support from rising Treasury yields.

The euro stood at $1.13270 , down 0.28% on the day.

Oil prices dipped but held onto to recent gains, having climbed 5% last week helped in part by supply disruptions from the unrest in Kazakhstan and outages in Libya.

U.S. crude fell 0.85% to $78.23 per barrel and Brent closed at $80.87, down 1.1% on the day.

The shift from risk weighed on cryptocurrencies, and bitcoin last fell 0.21% to $41,788.27

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Reporting by By Koh Gui Qing;
Additional reporting by Wayne Cole in Sydney, Editing by Alison Williams and Lisa Shumaker

Our Standards: The Thomson Reuters Trust Principles.

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