Stocks Hit Again on Inflation Fears – Dow down 0.65%
US equity markets extended their recent decline overnight as persistent inflation concerns continued to pressure global bond markets and further erode expectations of a Federal Reserve rate cut this year. Rising Treasury yields weighed heavily on risk sentiment throughout the session, with all three major US indices closing lower. The Dow Jones fell 0.65% to finish at 49,363, while the S&P 500 declined 0.67% to 7,353 and the Nasdaq underperformed again, sliding 0.84% to close at 25,870 as higher yields continued to weigh on growth and technology stocks.
US Treasury yields pushed sharply higher across the curve, reinforcing the market’s “higher for longer” interest rate outlook. The benchmark US 2-year yield rose 7.5 basis points to 4.119%, while the 10-year yield climbed 7.9 basis points to 4.666%. The move higher in yields helped support the US dollar, with the US Dollar Index advancing 0.12% to 99.31 against the major currencies.
Oil markets experienced another volatile trading session as investors attempted to assess the latest geopolitical developments in the Gulf region. Sentiment remained finely balanced between concerns over potential renewed US military action and hopes that diplomatic negotiations may still prevail. Brent crude eased 1.04% to settle at $110.94 per barrel, while WTI crude slipped 0.36% to $104.00.
Gold came under renewed selling pressure overnight, falling 1.84% to close at $4,482.61 an ounce as the combination of a stronger US dollar and higher Treasury yields reduced demand for the precious metal.
Bond Moves Driving Markets
US Treasury yields have risen sharply over the past week as stronger inflation data, higher oil prices, and ongoing geopolitical tensions forced markets to reassess expectations for Federal Reserve policy, and those moves have resonated around other products over the last few days. The US 10-year yield pushed toward 4.6%, while the 30-year yield climbed above 5% to its highest level since 2007, reflecting growing concerns that inflation will remain elevated for longer. As yields have moved higher, expectations for Fed rate cuts this year have been scaled back significantly, with markets now anticipating rates could remain elevated well into 2027. Traders are now preparing for more volatility in markets as the week moves on, with the dollar likely to push higher and stocks to move further south if yields remain elevated or drive higher still.
UK Data and Fed Minutes Ahead for Markets Today
Traders are expecting another busy day ahead, with geopolitical headlines likely to remain a key driver of market sentiment while some key data and central bank updates will provide some distraction. Asian markets are set to open on the back foot again after another tough day on Wall Street yesterday, and there is little on the calendar to distract them from overnight moves. The London session will see a focus on UK markets again when the CPI data (exp +3.0%) is released early in the day, with traders expecting plenty of volatility in the pound again around the event. The New York session is quiet again in the early part of the day, with just the Weekly Crude Oil Inventory data (exp -2.5 mio barrels) due on the data front. However, markets are expected to liven up towards the end of the day when the latest FOMC Meeting Minutes are released, which should provide further insight into the Federal Reserve’s policy outlook and the path for interest rates moving forward.
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