Global stocks retreat, Treasury yields rise as rate cut optimism fades

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Global stocks retreat, Treasury yields rise as rate cut optimism fades

Tuesday, stocks on Wall Street and in Europe fell, as did the prices of U.S. and other types of government debt. This happened because the market lost hope that the Federal Reserve will cut interest rates sharply this year.

As the yield on the 10-year Treasury note went back up to trade above 4% at one point, the dollar went up against most other currencies.

In the past week, the U.S. benchmark’s yield, which goes down as price goes up, was as low as 3.783%. This is less than the 150 basis points of rate cuts that the futures market had put in by December for the Fed’s overnight lending rate.

According to Marc Chandler, chief market analyst at Bannockburn Global Forex in New York, the dollar got stronger because its recent drop was too big. Also, the December unemployment report will show that the U.S. job market is still strong, Chandler said.

“The Fed will see above-trend growth and a strong job market when they meet later this month.” Chandler said, “The dollar is recovering because a strong job market means income, which means demand.”

A poll by Reuters shows that economists think 168,000 jobs were created last month, which is less than the 199,000 jobs that were created in November. They also think that the jobless rate will rise from 3.7% to 3.8%.

The value of the dollar against six big trading partners went up by 0.779% on the dollar index. It went down 0.87% to $1.0948, and it went up 0.76% to 141.940 for the yen.

There was a 0.25% drop in the STOXX 600 index in Europe, and a 0.87% drop in MSCI’s measure of stocks around the world (.MIWD00000PUS).

The Dow Jones Industrial Average (.DJI) went up by 0.07%, the S&P 500 (.SPX) went down by 0.72%, and the Nasdaq Composite (.IXIC) went down by 1.85%.

There were monthly, quarterly, and yearly gains in the three main U.S. stock markets last Friday. This was because traders thought it was more likely that the Fed would cut rates this year. Last week, the benchmark S&P 500 was just 1% away from its all-time high, which was set on January 3, 2022.

A 25 basis point cut in the Fed’s overnight rate is almost certain to happen when officials meet in March, according to the CME Group’s FedWatch Tool. This is what traders are betting on. Traders think that the Fed will set its goal rate at 3.829% in December.

As traders look for signs, they want to know if the major central banks will decide that inflation has slowed down enough to allow for big rate drops.

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