US Treasury yields rise, Wall Street falls as interest rates rise, and China looms large

LONDON/WASHINGTON (Reuters) – Long-term U.S. Treasury yields hit a 10-month high, while U.S. stocks struggled to find a solid footing in volatile trade as investors looked at the prospect of higher long-term interest rates and struggle. Chinese economy.

The benchmark 10-year yield reached 4.312% in Thursday trading and tested 4.338% in October, and the rally after that will see the highest returns since 2007.

A steady stream of stronger-than-expected economic data, coupled with Wednesday’s meeting minutes indicating Fed officials remain focused on containing inflation, boosted yields while putting the brakes on stocks and other markets.

Minutes of the Fed’s July rate-setting meeting released on Wednesday showed policymakers were divided on the need for more rate hikes, with some citing risks to the economy from pushing the increases too far, but most noting However, inflation remains the main focus.

Jeffrey Roach, chief economist at LPL Financial, said, “We read in the Fed minutes that officials are concerned about the cumulative effect of the hitherto unknown monetary policy tightening. Tighter credit conditions will eventually dampen economic activity and markets are volatile due to uncertainty.” .

On Thursday, the US Labor Department reported that the number of Americans filing new applications for unemployment benefits fell last week, suggesting that the still-tight labor market may signal a continuation of the Fed’s project to cool the economy.

“In short, the labor market remains strong, but it is much more balanced than it was during the acute worker shortage during the early recovery from the pandemic,” said Bill Adams, chief economist at Comerica Bank.

This report followed several reports earlier in the week that beat economists’ expectations, including US Retail Sales, all of which indicated that the Fed may have to stick to higher rates for a while longer.

Wall Street was mixed in the first half of the trading day before falling into the lower territory amid this murky economic picture. The Dow Jones Industrial Average (.DJI) was down 0.25% and the S&P 500 (.SPX) was down 0.11%. The Nasdaq Composite (.IXIC) fell 0.3%.

The MSCI World Index (.MIWD00000PUS) fell 0.34% on Thursday, after earlier falling to its lowest level since July 6.

In currency markets, the Dollar Index (.DXY), which tracks the greenback against a basket of six currencies, was relatively flat, rising 0.03% to 103.405.

China is struggling

In contrast to signs of continued economic might by the United States, China also looms large with investors as data and turmoil in the real estate sector paint a bleak picture of the country’s post-pandemic recovery.

The latest development was beleaguered asset manager Zhongzhi Enterprise Group saying it would undertake a debt restructuring, another sign of turmoil in China’s $3 trillion shadow banking sector.

However, recent moves by China’s central bank to keep liquidity reasonably ample and maintain a “careful and robust” policy to support the economy have helped boost some markets, including oil, which has seen significant declines in the past several days on fears of lower demand. chinese. .

Brent crude was last up 1.02 percent at $84.3 a barrel. US crude jumped 1.37% to $80.47 a barrel.

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