Stocks rise, US Treasury yields fall after US economy shrinks

By on July 28, 2022 0
  • US GDP fell 0.9% in the second quarter for a second consecutive decline
  • US Treasury Yields Fall, Dollar Rises
  • Wall Street up, European stocks up
  • GDP data follows Fed’s 75 basis point rate hike

NEW YORK, July 28 (Reuters) – Wall Street stocks rallied on Thursday, while Treasury yields fell for the third day in a row as investors digested data showing a decline in the U.S. economy for a second consecutive quarter, a day after the Federal Reserve raised interest rates. rates.

US gross domestic product (GDP) in the second quarter fell at an annualized rate of 0.9%, according to the Commerce Department’s preliminary estimate. That compares with economists’ expectations for growth of 0.5% and came after a 1.6% contraction in the first quarter. Read more

The data follows the Fed’s pledge on Wednesday not to flinch in its battle with the most intense U.S. inflation since the 1980s, even if it means an “extended period” of economic weakness and a market slowdown of employment. Read more

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U.S. stocks had also rebounded on Wednesday as comments from Fed Chairman Jerome Powell prompted bets that rate hikes would start to slow and lead to rate cuts in 2023.

Thursday’s drop in Treasury yields implied bets for a more gradual pace of tightening going forward, according to Mona Mahajan, senior investment strategist at Edward Jones, who also noted that GDP had fallen at a time when the The Fed really hadn’t raised rates that much. .

“It will certainly be an interesting balance between hopefully moderating inflation, but then consumers will have to deal with a tougher economic backdrop,” Mahajan said. “We don’t see the possibility of a deep and prolonged recession, but the downturn that the market is pricing in should materialize over the next two quarters, possibly even in the first quarter of 2023.”

While the S&P has already “done a lot of the work on the downside on prices in a moderate recessionary environment”, Mahajan sees more volatility ahead as “fundamentals are playing a bit of a catch-up.”

After hovering between red and green in the morning, stocks looked firmly positive in afternoon trading.

The Dow Jones Industrial Average (.DJI) rose 355.44 points, or 1.1%, to 32,553.03, the S&P 500 (.SPX) gained 48.11 points, or 1.20%, to 4,071.72 and the Nasdaq Composite (.IXIC) added 114.31 points, or 0.95%, to 12,146.74.

The MSCI Global Stock Gauge (.MIWD00000PUS) gained 1.25%.

Although Europe is facing a gas crisis and an expected recession, according to economists, the pan-European STOXX 600 index (.STOXX) rose by 1.09%.

In bond markets, yields on two-year Treasury bills fell further on Thursday after falling below 3% on Wednesday.

The spread between two- and ten-year Treasury yields, seen as a signal of recession when the short is higher than the long, narrowed on Thursday. The gap narrowed sharply on Wednesday.

Benchmark 10-year notes last rose 9/32 to 2.6994%, down from 2.732% late Wednesday. The 30-year bond last fell 27/32 to 3.0456% from 3.002%.

The 2-year note last rose 5/32 in price to fetch 2.8864% from 2.972%.

In currencies, the dollar index could not sustain an initial rally and was last up 0.066%. Read more . Meanwhile, the euro fell 0.34% to $1.0167.

“For now, the market is operating on the idea that slowing growth will cause the Fed to blink and we’re entering a recession,” said Mazen Issa, senior FX strategist at TD Securities in New York.

The Japanese yen strengthened 1.58% against the greenback to 134.44 to the dollar, while the pound last traded at $1.2136, down 0.12% on the day. XRF

As the euro faces an energy crisis, the IMF has warned that if Russia, which cut gas supplies to Europe this week, completely cut off supplies to Europe by the end of year, the region could experience zero economic growth next year. Read more

Oil prices were mixed as concerns over a potential global recession hitting energy demand offset falling crude inventories and a rebound in US gasoline consumption.

U.S. crude settled at $96.42 a barrel, down 0.86% while Brent was down 0.49% at $107.14 on the day.

Spot gold gained 1.0% to $1,750.78 an ounce as the shrinking US economy boosted its safe haven allure.

(Story corrects headline to “stocks rising”, not falling)

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Additional reporting by Marc Jones in London, Karen Brettell in New York, Wayne Cole in Sydney and Sujata Rao in London; Editing by Shounak Dasgupta, Catherine Evans and Barbara Lewis

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