US stocks find their way as bond yields decline
US stocks rose yesterday, Tuesday, supported by a decline in Treasury bond yields, and at the same time Wall Street was certain that geopolitical risks resulting from the war in the Middle East were moving away from US markets.
At the end of today’s trading, the Dow Jones Industrial Average was up 134.65 points, representing 0.40% of its value at the beginning of the day, and the S&P 500 Index was up by 0.52%, while the rise in the Nasdaq Index was 0.58%.
Stocks benefited from the rise in US Treasury bond prices, as investors rushed towards safe assets, especially those bonds, even as their returns declined, following the start of the “Al-Aqsa Flood” operations, which the Palestinian resistance launched against Israeli settlements in the occupied territories. Tuesday was the first trading of US bonds after the Monday federal holiday.
The yield on standard 10-year Treasury bonds decreased by 0.18% to reach 4.62%, meaning their price rose, with the reopening of their markets after a US federal holiday, before rising slightly to 4.64%.
Also contributing to Tuesday’s rebound were comments from Federal Reserve officials, who hinted that the world’s largest economy may have reached the end of its interest rate campaign.
Lori Logan, President of the Federal Reserve Bank of Dallas and a prominent hawk among America’s monetary policymakers, said that the sharp rise in long-term yields seen last week may mean that the need for interest rate increases is diminishing.
The Hamas movement, in coordination with some Palestinian resistance factions, launched a surprise attack on settlements in the occupied territories on Saturday, prompting Israel to declare war on Gaza. It was considered the bloodiest attack on the Israeli side in 50 years. The US stock market initially had a pessimistic and hasty reaction to the conflict on Monday, before stocks rose again in the final hours of Monday trading.
European stocks also witnessed a strong rise yesterday, Tuesday, as policy easing statements from decision makers at the Federal Reserve and from the European Central Bank contributed to raising morale, after the conflict in the Middle East pushed investors yesterday towards safe assets.
The STOXX 600 index of European stocks jumped 2%, its largest single-day percentage increase in nearly a year. Yesterday, the index fell by 0.3%, due to the bloody clashes in the Middle East, caused by the rise in oil prices and investors’ efforts to search for safety and stay away from the stock market.
Longer-term euro zone bonds and US Treasury bonds rose amid cautious messages from US and European Central Bank officials.
Francois Villeroy de Galhau, a member of the European Central Bank, said that inflation should remain at the European Central Bank’s target of about 2% by the end of 2025, despite the conflict in the Middle East.
This month, European stocks touched their lowest levels in six months, with European and US bond yields rising to their highest levels in several years, due to bets that major central banks will keep interest rates high for a longer period.
After rising on Monday morning, oil prices fell slightly at settlement yesterday, Tuesday, trimming some of their losses earlier in the session, as fears related to supply disruptions due to the war receded, although investors remained in a state of anticipation.
Brent crude fell 50 cents, or 0.57%, to $87.65 per barrel upon settlement, while US West Texas Intermediate crude fell 41 cents to $85.97 per barrel. The two crude oil prices fell earlier in the session by more than a dollar.
The two benchmarks gained more than $3.50 on Monday, due to fears that the conflict would extend beyond the borders of the Gaza Strip.
Although Israel produces very small quantities of crude oil, markets are concerned about the extension of the conflict and its impact on Middle Eastern supplies, which may exacerbate the expected deficit for the rest of the year.
“Direct oil supplies have not been affected by the conflict so far, so it is a wait-and-see situation,” said John Kilduff, partner at Again Capital.
American officials have pointed the finger at Iran as being involved in the Hamas attack on Israel, but reliable evidence of the Islamic Republic’s role has not yet emerged.
Vivek Dhar, an energy analyst at CPA, said that revealing evidence of Iran’s involvement would push prices higher.
In a more positive sign regarding supplies, Venezuela and the United States have made progress in talks that could lead to the easing of sanctions on Caracas, by allowing at least one additional foreign oil company to obtain Venezuelan crude oil, under some conditions.
2023-10-10 22:48:01
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