Treasuries rise with stocks on softer Fed comments: Markets wrap

Treasuries jumped and shares advanced after comments by Federal Reserve officials fueled speculation the US central bank may stand pat until year-end.

The yield on the policy-sensitive two-year Treasury dropped by the most since the end of August, while the benchmark 10-year had its best day since March. Traders boosted bets that the US tightening cycle is about done, while jitters over the Israel-Hamas war added haven demand.

European stock futures edged higher, while MSCI’s Asia Pacific Index headed toward its biggest increase in three months. Contracts on US equities pointed to small gains. The moves come with investors still evaluating the potential impact of the Israel-Hamas conflict.

Fed Vice Chair Philip Jefferson said Monday officials could “proceed carefully” following the recent rise in Treasury yields, and Fed Bank of Dallas President Lorie Logan said the surge in long-term rates may mean less need for further tightening.

“The spike in bond yields coupled with the unfolding geopolitical tensions in the Middle East seem to have served as the catalyst for the much-anticipated dovish shift from the Federal Reserve — a move that equity markets have been eagerly awaiting,” said Tony Sycamore, a senior market analyst at IG Australia.

At the end of last week, traders had boosted bets on another Fed hike this year as data showed US employment unexpectedly surged in September. That narrative switched on Monday as central bank officials tamped down speculation of another rate increase in 2023.

The dollar steadied after an earlier advance as odds for another Fed tightening eased. The greenback traded within a narrow range against its Group-of-10 peers.

The tensions in the Middle East, however, may escalate further after the Financial Times reported a top US general warned Iran to “not get involved” in the Israel-Hamas conflict.

In Asia, Chinese developer Country Garden Holdings Co. gave warnings that it’s set for its first-ever default and may be headed for a restructuring that would be one of the nation’s biggest.

Meanwhile, oil retreated after jumping by the most in six months Monday following Hamas’ attack. Gold was little changed.

Tough times

The latest Middle East conflict comes at a time of ongoing geopolitical concerns, with markets also facing a period of moderating global economic growth, according to Solita Marcelli, chief investment officer Americas at UBS Global Wealth Management.

“Against this backdrop, we continue to prefer fixed income to equities,” Marcelli said. “We see a better risk-reward profile for fixed income, and we recommend investors consider buying high-quality bonds in the five- to 10-year maturity range. We foresee further cooling in inflation and slower global growth.”

The next risk to US stocks may come from fiscal policy constraints at a time when the Fed is still fighting high inflation, according to Morgan Stanley’s Michael Wilson. The strategist — among the most prominent bearish voices on Wall Street — said while the US government narrowly avoided a shutdown last week, “the lack of a resilient long-term structure that supports fiscal discipline” could have an impact on financial markets.

Key events this week:

• Bank of England releases minutes of financial policy meeting, Tuesday
• IMF issues its latest world economic outlook, Tuesday
• US wholesale inventories, Tuesday
• Fed’s Raphael Bostic, Christopher Waller, Neel Kashkari and Mary Daly speak at separate events, Tuesday
• Germany CPI, Wednesday
• NATO defense ministers meeting in Brussels, Wednesday
• Russia Energy Week in Moscow, with officials from OPEC members and others, Wednesday
• US PPI, Wednesday
• Minutes of Fed’s September policy meeting, Wednesday
• Fed’s Michelle Bowman and Raphael Bostic speak at separate events, Wednesday
• Japan machinery orders, PPI, Thursday
• Bank of Japan’s Asahi Noguchi speaks, Thursday
• UK industrial production, Thursday
• US initial jobless claims, CPI, Thursday
• European Central Bank publishes account of September policy meeting, Thursday
• Fed’s Raphael Bostic speaks, Thursday
• China CPI, PPI, trade, Friday
• Eurozone industrial production, Friday
• US University of Michigan consumer sentiment, Friday
• Citigroup, JPMorgan, Wells Fargo, BlackRock results as the quarterly earnings season kicks off, Friday
• G20 finance ministers and central bankers meet as part of IMF gathering, Friday
• ECB President Christine Lagarde, IMF Managing Director Kristalina Georgieva speak on IMF panel, Friday
• Fed’s Patrick Harker speaks, Friday

Some of the main moves in markets:

Stocks

• S&P 500 futures were little changed as of 6:33 a.m London time. The S&P 500 rose 0.6% on Monday
• Nasdaq 100 futures rose 0.2%. The Nasdaq 100 rose 0.5%
• Japan’s Topix rose 2.2%
• Australia’s S&P/ASX 200 rose 1%
• Hong Kong’s Hang Seng rose 1.1%
• The Shanghai Composite fell 0.6%
• Euro Stoxx 50 futures rose 0.9%

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro was little changed at $1.0565
• The Japanese yen fell 0.1% to 148.69 per dollar
• The offshore yuan was little changed at 7.2869 per dollar
• The Australian dollar was little changed at $0.6414
• The British pound was little changed at $1.2232

Cryptocurrencies

• Bitcoin was little changed at $27 596.97
• Ether rose 0.5% to $1,584.02

Bonds

• The yield on 10-year Treasuries declined 16 basis points to 4.64%
• Japan’s 10-year yield declined three basis points to 0.770%
• Australia’s 10-year yield declined six basis points to 4.46%

Commodities

• West Texas Intermediate crude fell 0.4% to $86.01 a barrel
• Spot gold was little changed