Monday, June 17, 2024

Bond yields are up more than 5% and weighing on US stocks

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Bond yields hit 5% and put pressure on US stocks…and the Dow Jones lost 286 points

US stocks continued to decline in Friday trade, under pressure from a rise in the yield on ten-year Treasuries, which exceeded 5% for the first time since 2007, as major indexes ended the week in the red. The outbreak of conflict in Gaza adds further worries to global markets.

Losses accelerated in the final minutes of trading on the week’s final day, after the Dow Jones industrial average fell 0.86% on the day, losing 286 points, and the S&P 500 index lost 1.26%. The Nasdaq index gained 1.53%.

The yield on 10-year Treasuries crossed 5% for the first time in 16 years on Friday, seen as a new drag on US economic growth that could add to the strongest tightening policy the world’s largest economy has seen. For more than four decades. But the yield fell by the end of the day to 4.92%.

One analyst told CNN on Friday: “Markets don’t seem to believe the Federal Reserve will raise interest rates.”

U.S. bond yields, especially ten-year bonds, affect interest rates used for mortgages, credit cards and car loans, and stock markets lose a significant proportion of funds available for investment.

Relatedly, European stocks fell on Friday, posting their biggest weekly loss in seven months, as fears of escalating conflicts in the Middle East, rising government bond yields and disappointing earnings reports coincided.

The STOXX 600 index of European shares fell 1.4% to a seven-month low.

The index fell 3.4% on the week as fears of an escalating conflict fueled worries about oil supply disruptions and interest rates expected to remain high for a longer period of time, weighing on morale.

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A rise in government bond yields in Europe and the United States led to risk aversion as central bank policymakers, including Federal Reserve Chairman Jerome Powell, indicated that interest rates would remain high in the long term.

Corporate profits did little to support sentiment, with rising interest and energy prices putting further pressure on profit margins, analysts warned.

The mining sector led the decline and fell 3.4%, hurt by a 7.2% decline in shares of Polityen after a bigger-than-expected drop in third-quarter profit due to higher costs.

The travel and leisure index fell 2.3%, and shares of InterContinental Hotel Group fell 4.5% after a slowdown in quarterly net growth.

Financials were also the biggest drag, with shares of UBS Bank falling 2.8%.

Oil prices fell on Friday after Palestinian resistance freed two American prisoners from Gaza, raising hopes that the Israeli-Palestinian crisis would not worsen, preventing it from spreading to other parts of the Middle East and disrupting oil supplies.

Brent crude futures settled down 22 cents, or 0.2%, at $92.16 a barrel.

U.S. West Texas Intermediate crude futures for November delivery, which expire after Friday’s settlement, fell 62 cents, or 0.7%, to settle at $88.75 a barrel. The most widely traded December contract for West Texas Intermediate crude was down 29 cents at $88.08 a barrel.

Abu Ubaidah, spokesman for the Izz al-Din al-Qassam Brigades, announced today Friday that two American prisoners, a mother and her daughter, had been released for “humanitarian reasons” in response to Qatar’s mediation efforts in the war with Israel.

Both crude oil futures rose more than a dollar a barrel in the first hour of today’s session, amid fears the conflict could intensify.

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Nadia Barnett
Nadia Barnett
"Award-winning beer geek. Extreme coffeeaholic. Introvert. Avid travel specialist. Hipster-friendly communicator."

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