Dollar, yields rise ahead of Fed’s Powell speech

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  • The Fed should remain hawkish in Jackson Hole
  • Treasury yields hit multi-week highs
  • U.S. Core Capital Goods Orders Rise, But Momentum Slows

NEW YORK/HONG KONG, Aug 24 (Reuters) – The dollar rose and Treasury yields jumped on Wednesday ahead of a speech by Federal Reserve Chairman Jerome Powell in two days that could affirm the bank’s aggressive policy U.S. central government to control inflation or signal a “pivot” to moderate interest rate hikes.

U.S. and European stocks rose in choppy trade as investors weighed in on whether the U.S. central bank was more likely to slow its rate hikes or stay aggressive until it brings inflation back to its target by 2%.

Yields on German and US benchmark 10-year bonds hit eight-week highs. Yields on short-term UK government bonds hit 14-year highs. Soaring energy prices in Europe raised fears of rising inflation in Germany and the UK.

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The yield on 10-year US Treasuries rose again above 3%, signaling to some that the rebound in equities will be short-lived. The German 10-year bund hit 1.388% and the UK two-year gilts hit 2.955%.

“When the 10-year goes over 3%, all of a sudden stocks have a harder time. We saw it in May, we saw it in June, we’re seeing it again now,” said strategist Anthony Saglimbene. Chief Markets Officer at Ameriprise Financial in Troy, Michigan.

“It will be a headwind, as long as the 10-year stays above 3%,” he said.

Bets that the Fed will raise rates by 50 basis points at its policy meeting in September have climbed to 75 basis points.

Fed funds futures traders last estimated a 60.5% chance of the Fed raising rates by 75 basis points next month and a 39.5% chance of a 50 basis point hike basic.

“The market is oscillating between this ultra, ultra hawkish view and this ultra, ultra accommodating view” of Jackson Hole, Saglimbene said. “It’s going to be somewhere in the middle.”

The Dow Jones Industrial Average (.DJI) rose 0.08%, the S&P 500 (.SPX) gained 0.19% and the Nasdaq Composite (.IXIC) rose 0.42%.

In Europe, the pan-regional STOXX 600 index (.STOXX) closed up 0.16% and the MSCI gauge for stocks across the world (.MIWD00000PUS) was essentially flat, up 0.02%.

The euro fell to its lowest level in two decades and was last down 0.02% at $0.9965. The dollar index rose 0.074%.

Portfolio managers were waiting for Powell’s comment, and everything else is speculation, said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles.

“The market is trading around nothing but sentiment and the fact that we’ve been pretty overbought and we kind of need to pull back,” he said. “Now we’re bouncing back a bit, positioning ourselves in the Fed Chairman’s commentary at Jackson Hole.”

Economic data showed new orders for US-made capital goods rose in July, but the pace slowed from the previous month, suggesting business capital spending may struggle to rebound after contracting in the second trimester. Read more

Orders for non-military capital goods excluding aircraft, a closely watched indicator of business spending plans, rose 0.4% last month, the Commerce Department said Wednesday. These so-called basic capital goods orders jumped 0.9% in June.

Oil prices rose in volatile trading amid fears the US could consider further concessions to Iran in its response to a draft deal that would restore Tehran’s nuclear deal, and potentially exports of crude from the OPEC member.

Benchmark Brent fell after breaking above $100 a barrel. Saudi Arabia has hinted that the Organization of the Petroleum Exporting Countries may consider cutting output, although bearish economic signals from central bankers are weighing.

U.S. crude futures settled $1.15 at $94.89 a barrel and Brent rose $1.00 to $101.22.

US gold futures were unchanged at $1,761.50 an ounce.

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Reporting by Herbert Lash, additional reporting by Alun John in Hong Kong and Tom Westbrook in Singapore; Editing by Tomasz Janowski, Bernadette Baum and David Gregorio

Our standards: The Thomson Reuters Trust Principles.

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