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The U.S. and global markets witness a downturn as Treasury yields reach their lowest point in two months. Despite individual stock plunges in major companies like Walmart, Cisco, and Alibaba, Wall Street stock indexes remain relatively stable. Thus, signaling a possibility that the Federal Reserve’s series of rate hikes might be reaching an end.
The yield on the 10-year briefly touched 4.379%, marking its lowest since September 20, before rebounding to hover around 4.45%. Meanwhile, the 2-year Treasury yield also hit its lowest since September 1 but saw a subsequent rise of 3 basis points, resting at 4.875%.
Oil Prices Plummet, Economy Softens
Amidst a significant drop in U.S. crude oil prices, hitting four-month lows due to rising inventories and sluggish global demand, Treasury yields experienced a notable decline. The gradual lifting of oil sanctions on Venezuela further contributed to the nearly 25% loss in oil value within six weeks.
Signs of a weakening U.S. economy emerge as jobless claims unexpectedly rise, homebuilder sentiment declines sharply, and manufacturing sees a substantial retreat in October. However, the Philadelphia Federal Reserve reports a more optimistic outlook on mid-Atlantic business sentiment, offering a glimmer of positivity amidst the downturn.
Treasury yields Optimism Amidst Disinflation Concerns
The overall economic picture sparks newfound optimism concerning disinflation. Forecasts indicate a potential deterrence for the Federal Reserve from further interest rate hikes, potentially easing rates by up to 100 basis points in the coming year.
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Despite Walmart’s stock decline, attributed to cautious consumer behavior leading into the holiday season, the overall sentiment appears favorable for the Fed. The retailer’s acknowledgment of consumer preferences for discounts aligns with market trends.
Read More: US Treasury Yields Stand Strong ahead of inflation Data
Market Resilience and Global Impact
Stock markets, particularly the S&P500, manage to maintain marginal gains amidst the economic fluctuations. Additionally, global markets, including Europe and Japan, mirror the decline in U.S. Treasury yields.
Yields and prices exhibit an inverse correlation, where a basis point equals 0.01%. This week witnesses a significant decline in yields across the curve, following data releases suggesting a potential moderation in persistently high inflation.
In various parts of the world, economic softening is evident. From British retail sales falling unexpectedly to Italian yields dropping and Chinese stocks underperforming, the global economic scenario reflects widespread challenges.
Chinese Market Struggles Treasury yields
Chinese stocks, notably Alibaba’s Hong Kong shares, experience a significant downturn due to uncertainties surrounding U.S. export restrictions on crucial components used in artificial intelligence applications.
Recent economic indicators, including the producer price index’s 0.5% decrease in October (contrary to expectations of a slight rise), point to the most substantial fall in the index since April 2020.
Key Market Indicators Ahead
The day ahead remains relatively quiet in terms of scheduled events. However, housing starts data for October and speeches from key central bank figures will likely influence market movements.
The U.S. Oct housing starts/permits and speeches by several Federal Reserve representatives, alongside the APEC leaders’ meeting in San Francisco, are expected to provide further insights into the market’s direction.
