The U.S. two-year treasury yield hit its highest in 15 years as markets priced in higher odds of a 75 bps Fed rate hike at the Sept. policy meeting
European stocks look set to open lower on Monday, with worries about the Fed’s aggressive rate hiking cycle and weakening growth prospects in China likely to keep underlying sentiment cautious.
The U.S. two-year treasury yield hit its highest in 15 years as markets priced in higher odds of a 75 bps Fed rate hike at the Sept. 20-21 policy meeting.
Yields climbed across Europe, with double digit gains seen in Italy, Spain and Portugal as investors priced in the risk that the European Central Bank could raise rates by 75 bps next month.
The dollar index scaled a 20-year high, making greenback-priced commodities and bullion expensive for those holding other currencies.
Asian markets followed Wall Street lower and U.S. stock futures tanked after data showed profits at industrial firms sank in July as a result of fresh COVID-19 curbs and power shortages due to heatwaves.
In the U.S., the Dow fell 3 percent on Friday, the S&P 500 plunged 3.4 percent and the tech-heavy Nasdaq Composite index lost 3.9 percent, as Fed Chair Powell reiterated the Fed’s resolve to bring inflation back to its 2 percent target, arguing that a failure to restore price stability would mean ‘far greater pain.’
He declared that the central bank would use its tools “forcefully” to tame inflation, which could mean slower growth, a weaker job market and “some pain” for households and businesses.
European stocks closed sharply lower Friday on the back of Powell’s comments. The pan European Stoxx 600 fell 1.7 percent.
The German DAX lost 2.3 percent, France’s CAC 40 index tumbled 1.7 percent and the U.K.’s FTSE 100 shed 0.7 percent.
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