WALL Street rose on Wednesday in choppy trade as investors saw an imminent end to ultra-loose US monetary policy as a vote of confidence in the economy, while two-year Treasury yields hit 18-month highs on bets that policy tightening is in the offing.
Indeed, the Federal Reserve signalled on Wednesday it could start reducing its crisis-era support for the US economy – which is set to grow this year at its fastest pace in decades – by the middle of next month with a growing number of policymakers worried that high inflation could persist longer than previously thought.
General optimism about economic growth helped the S&P 500 to reverse losses late in the day to gain 0.30%, while the Nasdaq Composite jumped 0.73% and the Dow Jones Industrial Average ended flat (fell 0.53 points to 34,377.81).
The pan-European STOXX 600 index rose 0.70% and MSCI’s gauge of stocks across the globe gained 0.48%.
Figures earlier had showed the US consumer price index rose 0.4% last month, higher than an expected 0.3%, as Americans paid more for food, rent and a range of other goods, and highlighting the challenges of strained supply chains.
The two-year Treasury yield jumped to 0.394%, a level last seen March 2020, before receding to 0.36%. Benchmark 10-year yields declined to 1.5403%, from 1.58% late on Tuesday.
That left the spread between 10-year and two-year Treasury yields at around 118 basis points, the lowest in over two weeks. A flatter yield curve dents banks’ profitability and weighed on bank shares.
The US dollar which has benefited from bets that tighter US monetary policy would burnish its appeal as a higher-yielding currency, took a breather on Wednesday.
The dollar index fell 0.42% to 94.033 from a one-year high of 94.563 struck the previous day. A softer US dollar helped the euro to jump 0.56% off a near 15-month low to US$1.15945.
The Japanese yen which has hovered at a three-year low against the US dollar also bounced back, rising 0.23% to 113.27 per US dollar.
Oil prices which have been on a tear also paused their rally as some investors questioned whether inflation and other supply chain issues will crimp economic growth and ultimately energy demand.
US crude fell 0.15% to US$80.52/barrel while Brent was at US$83.27, down 0.18% on the day.
Gold, usually seen as a hedge against inflation, shone as a softer U dollar added to its strength.
Spot gold jumped 1.9% to US$1,792.91 an ounce. US gold futures climbed 1.92% to US$1,792.00 an ounce. – Oct 14, 2021