Editor's PiCK
US Stock Market Rebounds Amid Fed Independence Concerns and Rate Cut Expectations
Summary
- It was reported that the New York stock market turned from a mixed trend to an upward move as concerns over Fed independence and expectations of a rate cut in September intersected.
- Major tech stocks such as NVIDIA, AMD, and TSMC, along with Boeing, GE Aerospace, and Eli Lilly, saw their stock prices rise due to various momentum factors.
- It was reported that the yield spread between 5-year and 30-year US Treasuries widened to the largest since 2021, reflecting changes in both short- and long-term interest rates.
The gap between 30-year and 5-year Treasuries widens to the largest since 2021
NVIDIA, AMD, and TSMC see stock price increases
Amid Donald Trump’s attempts at political intervention in the Federal Reserve, on the 26th (local time), the New York stock market showed a wait-and-see stance and started mixed.
After an initial drop at the opening, the major stock indices reversed to gains by 10:20 a.m. Eastern Standard Time, with the S&P 500 index up 0.1% and NASDAQ up 0.2%. The Dow Jones Industrial Average has been fluctuating within a range below 0.1%.
The 10-year Treasury yield stood at 4.281%, up about 1 basis point (1bp=0.1%) from the previous day. Against the backdrop of heightened mid- to long-term inflation risks due to the Fed’s independence crisis, the 30-year Treasury yield rose 4bp (1bp=0.01%) to 4.93%. The 2-year Treasury, with expectations for a Fed rate cut remaining in September, fell 3bp to 3.694%.
The spread between the 5-year and 30-year US Treasury yields widened to as much as 116bp, marking the largest gap since 2021.
The dollar index fell 0.2%, weakening against most major currencies.
Most of the Magnificent 7 companies declined, but NVIDIA gained 0.6% a day ahead of its earnings release, and AMD rose 2.4% after a price target hike by a securities firm. The American Depositary Receipts of TSMC, for which Jensen Huang recommended a 'buy', rose more than 1%, extending their winning streak to three days.
Eli Lilly announced that its experimental obesity drug reduced weight by an average of 10.5% in diabetic patients in clinical trials, raising expectations for imminent approval and boosting its stock price by over 3%.
Korean Air announced it had signed a $50 billion contract with Boeing and GE Aerospace, pushing up Boeing’s stock by nearly 2% and GE Aerospace by 1.7%.
Bitcoin traded at $109,704.92, up 0.1%, and Ether at $4,450.44, up 2.2%.
Ian Lyngen of BMO Capital Markets said, "US interest rate movements have remained largely constrained in recent ranges, but a considerable number of hedging products against a weakening Fed independence outperformed on news of Cook’s dismissal." Lyngen also pointed out, "Short-term yields rose while long-term bonds were sold off, causing a sharp twist in the yield curve."
Ulrike Hoffmann-Burchardi of UBS Global Wealth Management commented, "In the short term, I expect Fed decisions to be made independently." However, "Over the next 6 to 12 months, the risk of the Fed becoming more politicized has increased — especially if partisanship grows among regional Fed presidents."
Jungah Kim, Contributing Reporter kja@hankyung.com
Korea Economic Daily
hankyung@bloomingbit.ioThe Korea Economic Daily Global is a digital media where latest news on Korean companies, industries, and financial markets.
