Fed Tightening Bets Lift Treasury Yields as US Stocks Fall

Market Wrap-up: Higher Yields Pressure Stocks as Fed Tightening Bets Rise

US stocks fell on Wednesday as a sharp rise in Treasury yields increased pressure on equities and markets raised expectations for further Federal Reserve tightening. The S&P 500 declined 0.75% to 7,706.03, while the Nasdaq Composite fell 1.13% to 26,936.04. The Dow Jones Industrial Average lost 352.10 points, or 0.68%, to 51,511.59.

The move in equities came as US Treasury yields rose following stronger-than-expected business activity data, while higher oil prices and weak demand at a five-year Treasury auction added to upward pressure on yields. The 10-year Treasury yield reached 5.135%, its highest level since July 2007, while the 2-year yield climbed to 4.947%, its highest since May 2024.

The latest economic data showed US business activity accelerated to its strongest level in more than five years in September, although stronger demand placed pressure on supply chains and pushed prices higher. The combination of firm economic activity and persistent inflation pressures added to expectations that the Fed could maintain its tightening stance.

Fed Governor Michael Barr said on 23 September that further policy adjustments may be needed to bring inflation under control. He noted that economic growth remained strong and the labour market was resilient, while inflation remained above the Fed's 2% target and had not shown a clear path towards the target.

The US Dollar Index also strengthened for a third consecutive session, reaching a new two-month high and moving above 101.00. The advance came alongside higher Treasury yields across the curve.

Gold remained subdued amid expectations for further Fed tightening. Spot gold was down 0.1% at $4,281.98 an ounce as of 0155 GMT, while December US gold futures were little changed at $4,317.50. Higher interest rates can reduce gold's appeal relative to interest-bearing assets.

Oil prices recovered on Wednesday as Iran's President Masoud Pezeshkian said Iran would not surrender to the US. Brent crude rose 3.9% to $103.08 a barrel, while WTI gained 1.8% to $92.16. The move ended a five-session losing streak for oil, while Reuters reported that Iran could reopen the Strait of Hormuz within a week if the US reduced military pressure and lifted its blockade of Iranian ports.

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DXY:

Key takeaway:

• DXY extends its winning streak to three sessions, reaching a fresh two-month high.
• The index breaks above 101.00 as the US dollar continues to strengthen.

Technical Outlook:

• Daily Bias: Bullish
• Support: 100.48
• Resistance: 101.20

Gold:

Key takeaway:

• Gold remains subdued amid expectations of further Fed tightening.
• Spot gold slips 0.1% to $4,281.98 an ounce.

Technical Outlook:

• Daily Bias: Bearish
• Support: 4,275
• Resistance: 4,371

WTI:

Key takeaway:

• WTI stages a rebound after five consecutive sessions of losses.
• The recovery brings WTI back above the $92 level as supply risks remain in focus.

Technical Outlook:

• Daily Bias: Bullish
• Support: 88.66
• Resistance: 93.00

Dow Jones:

Key takeaway:

• Dow Jones falls 352.10 points, or 0.68%, to 51,511.59.
• The index closes lower after coming under pressure in the latest session.

Technical Outlook:

• Daily Bias: Bearish
• Support: 51,167
• Resistance: 52,274

Calendar Watch:

• US Initial Jobless Claims: Weekly data due on Thursday, alongside other US economic releases.
• US New Home Sales: Data due as markets assess the strength of the US economy.
• US Building Permits (Final, August): The final August reading will provide an updated view of US housing-market activity.
• US Q2 Current Account: Data on the US external balance due on Thursday.
• Fed officials: Williams, Barkin, Hammack and Paulson are scheduled to speak ahead of the Trump-Xi summit.

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