NEW YORK: Treasury yields jumped and a measure of global stocks fell on Thursday after Federal Reserve Chair Jerome Powell said policymakers “are not confident” interest rates are high enough to bring inflation down to the US central bank’s 2 per cent target.
The fight to restore price stability “has a long way to go”, Powell said in comments that delved into how he sees the final phase of fighting inflation unfold, with possibly more “disinflation” needing to come from an economic slowdown.
For some, Powell’s comments were no different from last week when the Fed held interest rates steady, leading many in the market to surmise the rate hiking cycle was over. But some Fed officials have signalled otherwise as the economy remains strong.
Data showed the number of Americans filing new claims for unemployment benefits edged down last week, signaling layoffs remain low even as the jobs market shows some signs of cooling.
Richmond Fed President Thomas Barkin said on Thursday that while there has been “real progress” on inflation, he is still unsure if the Fed will need to push its policy rate higher to finish the job.
“The economy is not buckling under the current cost of capital, and if it’s not, then what’s the point?” said Phillip Colmar, global strategist at MRB Partners in New York, referring to expectations the Fed would ease policy after last week’s jobs data. “There’s no real case for the Fed to cut here.”
The yield on 10-year notes rose 11.4 basis points (bps) to 4.622 per cent and the two-year’s yield, which reflects interest rate expectations, rose 8.8 bps to 5.024 per cent.
A weak auction of $24 billion in 30-year Treasuries pushed yields higher before Powell’s comments and helped stocks on Wall Street move lower.
“The market was oversold before non-farm payrolls and the FOMC meeting (last week) and it was overbought before the auction,” said Steven Ricchiuto, US chief economist at Mizuho Securities USA LLC in New York.
“Basically, investors looked at where the pricing was and said I’m not as interested,” Ricchiuto said about the auction.
The three major stock indices on Wall Street tumbled, on course to snuff eight- and nine-day winning streaks for the S&P 500 and Nasdaq, respectfully, by day’s end.
MSCI’s gauge of global stock performance shed 0.39 per cent as stocks on Wall Street fell. The Dow Jones Industrial Average fell 0.63 per cent, the S&P 500 lost 0.73 per cent and the Nasdaq Composite dropped 0.85 per cent.
Earlier in Europe, the pan-regional STOXX 600 index closed up 0.84 per cent.
The dollar rose after yields moved higher.
Germany’s benchmark 10-year borrowing cost rose 3.5 bps (bps) to 2.648 per cent, up from a two-month low of 2.606 per cent on Wednesday.
In Asia, Japan’s Nikkei raced up 1.5 per cent, thanks to solid earnings from Super Mario maker Nintendo and calculator and watch firm Casio and broad-based gains in the oil sector.
China’s property sector woes boomeranged back, though, with main Hong Kong listed real estate index down 4 per cent as embattled property giant Country Garden plunged nearly 10 per cent on a blow to its rescue hopes.
Chinese inflation figures for October also showed a 0.1 per cent decline compared with September and a 0.2 per cent year-on-year fall, pointing to still fragile demand in the world’s second-biggest economy.
The dollar gained 0.22 per cent at 151.285 yen and the euro fell 0.35 per cent at US$1.0671. The dollar index, which tracks the greenback against a basket of currencies of major trading partners, rose 0.35 per cent lower at 105.85.
The Brent crude oil benchmark closed above $80 a barrel after demand concerns and a fading war-risk premium had triggered a sell-off earlier this week.
Brent crude futures settled at US$80.01 a barrel, a gain of 47 cents. U.S. West Texas Intermediate (WTI) crude futures settled at US$75.74 a barrel up 41 cents, or 0.54 per cent.
Gold rose as the dollar eased.
US gold futures rose 0.6 per cent to US$1,968.90 an ounce.