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Wall Street pauses stock comeback, keeps Treasury yields climbing

Economy Mar 25, 2022 04:26PM ET
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2/2 © Reuters. FILE PHOTO: A woman stands in front of a screen displaying Japan's Nikkei share average, U.S. and other countries' stock market indicators outside a brokerage in Tokyo, Japan December 19, 2018. REUTERS/Issei Kato 2/2

By Lawrence Delevingne

(Reuters) -Shares on Wall Street took a breather on Friday after a tech-driven rally and U.S. Treasury yields rose to fresh heights as markets evaluated a world of elevated interest rates and the effects of Russia's war in Ukraine.

The Nasdaq fell about 0.16% as technology and healthcare stocks pulled back, while the Dow Jones Industrial Average and S&P 500 edged up about 0.5%, with energy and financial shares rising on oil price gains and bets on interest rate hikes by the Federal Reserve.

MSCI's gauge of stocks across the globe was up 0.11%, adding a second consecutive week of gains for the first time in 2022. The pan-European STOXX 600 index also inched up 0.11%, but was down on the week.

Share prices have been supported by global flash Purchasing Managers' Index (PMI) data for March this week showing the world economy was broadly resilient, but the longer-term economic outlook is making investors cautious. Barclays (LON:BARC), for example, cut its 2022 world economic growth forecast this week to 3.3% while traders have ramped up short bets.

Global bond markets continued to see a weeks-long sell-off.

Yields on benchmark 2- and 10-year U.S. Treasury notes jumped to almost three-year highs on Friday as the market anticipates inflation will spiral higher, forcing the Fed to aggressively hike interest rates.

Ten-year Treasury yields rose 14.3 basis points to 2.484%, a rate last seen in early May 2019. The 2-year yield, which typically moves in step with interest rate expectations, was up 16.2 basis points at 2.287% - a rate also last seen in early May 2019.

Chicago Fed President Charles Evans was the latest U.S. policymaker to sound more hawkish, saying on Thursday the Fed needs to raise interest rates "in a timely fashion" this year and in 2023 to curb high inflation before it is embedded in U.S. psychology and becomes even harder to get rid of.

Bank of America (NYSE:BAC) (BofA) joined a small but growing number of top investment banks calling for more aggressive interest rate increases from the Fed against a backdrop of soaring inflation data. The bank now expects two hikes of 50 basis points (bps) each at its June and July meetings with "risks" of those expectations being pulled forward into May and June respectively.

Markets expect U.S. interest rates to rise by as much as 190 bps in total over the rest of this year, after a 25-bps hike last week. Investors are assigning an approximately 77% probability of a 50-bps rate hike in March.

Morgan Stanley (NYSE:MS) market analysts wrote in a note late Thursday that fast Fed action was not overly concerning for the economy.

"While a disorderly tightening of financial conditions remains a risk to the outlook, particularly in areas like credit, our baseline growth outlook remains constructive," they wrote. "We think (it) helps contain risks that financial conditions become too dislocated in response to the Fed's actions."

OIL REVERSAL

Oil prices turned positive on Friday after reports of a missile strike and a fire at Saudi Arabia's state-run oil company Aramco (SE:2222)'s facility.

U.S. crude rose 0.63% to $113.05 per barrel and Brent was at $119.78, also up 0.63% after dropping more than $3 earlier in the session. Both benchmarks were heading for their first weekly gains in three weeks. [O/R]

The U.S. dollar edged higher against a basket of major currencies on Friday, a third straight day of gains. The euro was slightly lower.

"The one thing everyone can agree upon is inflation is going to be longer-lasting and a lot of that will be sticky and that will complicate what central banks do," said Edward Moya, senior market analyst at Oanda in New York. "You will probably see the dollar lead the charge with rate hikes, Europe will lag and that interest rate differential should provide some support for the dollar."

Demand for safe-haven assets including gold and the Swiss franc remained resilient as the conflict in Ukraine continued. Moscow on Friday signaled scaling back its ambitions in Ukraine to focus on territory claimed by Russian-backed separatists as Ukrainian forces went on the offensive, recapturing land on the outskirts of the capital Kyiv.

Spot gold remained elevated at $1,955 an ounce, down about 0.10% for the day. [GOLD/]

Wall Street pauses stock comeback, keeps Treasury yields climbing
 

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Comments (14)
Shep De
Shep De Mar 26, 2022 1:42AM ET
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Business growth is fraught with headwinds, oil is just getting g started but other things at play too, like a slowing buying by consumers of tech because of lack of desire for gaming, movies, social media, from Covid & technology de-growth til metaverse and/or VR gaming at more than nominal level
Chad Richer Than You
Chad Richer Than You Mar 25, 2022 4:45PM ET
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Ukraine is Syria nr 2. So you're looking at 10+ years of conflict that ultimately don't matter for the market. Europe/USA need to accept this fact and move the fvk on. Retail investors need to cut politics cr. ap and focus on their investments.
Kaushal Shah
Kaushal Shah Mar 25, 2022 4:45PM ET
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if market surged in everything then what is the use of market? every action need reaction and if there is no reaction of bad news then market is puppet show.
Chad Richer Than You
Chad Richer Than You Mar 25, 2022 4:44PM ET
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Stop stocking food cans and Pampers for you kids. Just buy SP500 large cap, crypto, and energy. No recession in sight. No end of days. The market has factored in the Russian-Ukrainian conflict and surge in energy cost.
Dang Nguyen
Dang Nguyen Mar 25, 2022 2:11PM ET
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Will 2y catch up with 10y
Kaushal Shah
Kaushal Shah Mar 25, 2022 1:36PM ET
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big jolt in Dow expected due to high yields. sudden crash is ahead. be careful
Mitchel Pioneer
Mitchel Pioneer Mar 25, 2022 12:56PM ET
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Move lower cut off in its tracks.  What a joke.  Now it will be "maintained" until the "late trade" crew clocks in to complete fraudulent Friday with a magical "rally" in the final hour.  Welcome to the US Ponzi Scheme, laughingstock of the investing world.
Chad Richer Than You
Chad Richer Than You Mar 25, 2022 12:56PM ET
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Get a life, not social justice
Marco cuevas
Marco cuevas Mar 25, 2022 11:44AM ET
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Hedge funds hate the little guys because.they dont like making.us money and.big.firms.are.selling.off.today to give paychecks.at the end.of.the month prepare.for.a.bloodbath today.
Chad Richer Than You
Chad Richer Than You Mar 25, 2022 10:35AM ET
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Only Ukrainians understand Russians and vice versa. Mind your own business.
ottin nerner
ottin nerner Mar 25, 2022 9:48AM ET
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be careful of low volume rally....
First Last
First Last Mar 25, 2022 9:48AM ET
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Low volume rallies are the norm
Chad Richer Than You
Chad Richer Than You Mar 25, 2022 9:35AM ET
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Ukraine is Syria nr 2. So you're looking at 10+ years of conflict that ultimately don't matter for the market. Europe/USA need to accept this fact and move the fvk on. Retail investors need to cut politics cr. ap and focus on their investments.
 
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