U.S. stock and government bond prices fluctuated on Monday after Federal Reserve Chairman Jay Powell emphasized the need to quickly raise interest rates to combat high inflation.
Government bond prices, which had fallen earlier in the day, accelerated losses after Powell appeared at a conference hosted by the National Association for Business Economics. Yields on the benchmark 10-year Treasury note, which rise as prices fall, rose 0.15 percentage points to 2.3 percent.
The US government bond market is in the middle worst month since Donald Trump was elected president in 2016.
Stocks also fell soon after Powell’s Comments but recovered most of their losses by afternoon. The S&P 500 index fell as much as 0.9% before closing below 0.1% for the day.
The tech-dominated Nasdaq Composite fell 0.4%.
Powell repeatedly emphasized on Monday that the central bank needs to move “urgently” in the direction of tighter monetary policy to restore price stability. He added that he is confident the Fed can bring inflation down — a 40-year high of 7.9% in February — without triggering a recession.
His comments came after US stocks posted best week as of 2020, despite the Fed starting its long-awaited rate hike cycle. Europe’s Stoxx 600 index also erases all losses the country has suffered since Russia’s invasion of Ukraine began.
“I was really surprised to see the stock market turn positive last week,” said Ewout van Schaick, multi-asset director at NN Investment Partners.
“The economic impact of war is growing,” he said, citing risks of commodity inflation continuing to outweigh any resolution of the conflict due to sanctions against Russia and high prices. Higher inputs affect the profitability of firms.
The Stoxx 600 closed flat on Monday. The UK’s FTSE 100 rose 0.5%, but indices in France, Germany and Spain fell again.
Last week’s gains were helped by optimism about peace talks between Russia and Ukraine. On Monday, the Kremlin slowed down the progress in the talks, saying there was “no further significant movement” as Fierce fighting engulfed the port city of Mariupol. Mariupol’s status has been a sticking point in discussions between the two sides.
In addition to higher yields on 10-year bonds, yields on shorter two-year bonds also rose 0.16 percentage points to 2.1%. The Treasury yield curve traditionally slopes upward as investors demand higher earnings yields to offset capital allocation over longer periods of time.
“The current flatness of the yield curve is quite unusual,” said Paul O’Connor, head of multi-assets at UK-based Janus Henderson. “The market is telling us that interest rates are going to go up pretty much in the short term.”
In the commodity market, Brent crude rose 7.1% to $115.62 a barrel on Monday, up from a day before Russian President Vladimir Putin launched the February 24 invasion of Ukraine to more than 18%. Russia is the world’s second-largest supplier of crude oil, and while the EU has yet to follow the US in banning Russian imports, the country is facing challenges. call connection do like that.
Germany’s 10-year gold rice paper yield added 0.1 percentage points to 0.46 percent, the highest level since late 2018. UK gilt equivalent yield added 0.15 percentage points up 1.63 percent.
