- Markets lifted by Wall Street rebound as bond yields pull back slightly
- Dollar loses ground as traders await direction from US CPI data
- Oil prices dip again as progress seen in Iran nuclear talks
Stocks try to shrug off bond market rout
The selloff in sovereign bonds paused for breath on Wednesday, pulling their yields slightly lower after the sharp spike that followed last week’s hawkish shift by the European Central Bank. But the rally in 10-year yields is unlikely to be over as markets are still assessing how aggressively central banks will hike rates this year.
However, some calm was restored in bond markets with the help of strong demand for three-year notes in the US Treasury Department’s latest auction. The increased appetite for government debt boosted equity markets, which have been jittery since December when the Fed made its second hawkish pivot in as many weeks amid spiralling inflation in the United States. With the ECB now signalling it may soon join the rate hike club, investors have started to panic a bit as monetary policy tightening is on the menu everywhere.
Friday’s much stronger-than-expected NFP report further roiled stocks but the climbdown in yields that started yesterday in late US trading has provided some respite for Wall Street. The S&P 500 ended the session 0.8% higher, while the Nasdaq Composite rose 1.3%.
Big tech came to the rescue once again as the likes of Apple, Amazon and Microsoft enjoyed solid gains. Banking stocks edged higher too but Facebook parent Meta was unable to halt its losing streak. The more cheerful mood spread to Asia and Europe today, and US futures are indicating an extension of Tuesday’s rebound.
Fed speakers, Disney earnings, Treasury auction lined up
However, there’s a big question mark as to whether risk assets can stage a meaningful recovery as investors are waiting for tomorrow’s CPI report out of the United States to gauge how soon inflation will peak. Another strong print would likely fuel bets that the Fed will raise rates more than the five times that are priced in.
But there’s a number of potentially significant tests coming up even before the inflation data. Disney will report its earnings after today’s market close and could yet throw another spanner in the works for Wall Street bulls.
The Fed officials speaking today, which will include the Cleveland Fed’s hawkish president, Loretta Mester, could also upset the market peace, while the 10-year Treasury auction that’s also scheduled for later may not go quite as smoothly as yesterday’s one.
Dollar off highs on firmer euro, aussie shines
In the currency markets, the major pairs were steady as traders have mostly taken to the sidelines ahead of Thursday’s all-important inflation figures.
The US dollar eased off from yesterday’s highs and the safe-haven Japanese yen extended its retreat.
The euro managed to firm slightly following the knockback from ECB President Lagarde on Monday when she tried to backtrack on some of the more hawkish rhetoric from last week’s meeting. Still, the single currency appears to be establishing a foothold above $1.14, which suggests the latest tumble may only have been a temporary setback.
The pound and the antipodean currencies are headed for their third straight day of gains. The aussie, in particular, has been rallying hard this week, boosted by higher metal prices and a surge in Australian government bond yields.
The Canadian dollar, meanwhile, is recouping some of yesterday’s losses when it came under pressure from the slump in oil prices.
Iran nuclear talks weigh on oil
Oil futures remained in the red on Wednesday on encouraging signs that progress is being made in the talks between Iran and Western nations on Tehran’s nuclear ambitions. A new round of negotiations got underway on Tuesday and there is cautious optimism that a deal is possible amid a softening in tone by both the Biden administration and the Iranian government.
WTI futures are currently hovering around $89 a barrel, while Brent crude is struggling to hold above $90 a barrel.