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World markets have shaken today as the rise in government bond yields triggered a red sea on Wall Street.
Government bond prices fell overall yesterday, raising the yield (or interest rate) on bonds. In the USA, there were remarkable moves in which 10-year Treasury bond yield jumped to 1.5% for the first time in a year.
The bond sale shows that investors expect this year’s economic recovery will boost inflation, especially as they expect the Biden White House to plan a new $ 1.9 trillion incentive campaign.
This could force central banks to tighten monetary policy, and put an end to currency incentive packages that have helped markets recover after the crash last March.
Last night, tech centric Nasdaq Down 3.5% – worst day since October – Dow It fell 1.75% from Wednesday’s high.
Asia-Pacific markets fell overnight and we expect losses in Europe this morning. FTSE 100 The blue-chip stock index in London is on its way down 1% +.
One worrying thing about the sale is that Federal Reserve chief Jerome Powell has spent two days this week to testify to Congress and insisted that the Fed is not about to end its incentive.
Yet the markets are definitely angry – abandoning the more risky assets and returning to rescue heaven like the US dollar.
The sale came after some encouraging US economic data – jobless claims fell last week, while durable goods orders rose 3.5% in January. Still, this seems to have intensified concerns about potential interest rate increases.
Ipek Ozkardeskayasenior analyst at his company Swissquote, explains:
Investors dropped government bonds like a hot potato as all new data pointed to an improvement in economic conditions and called for rising inflation.
Stocks fell along with government bonds. The Nasdaq caused losses with a significant 3.52% drop as technology stocks fell sharply as a result of the mass shift from growth to value stocks. Nike, Caterpillar, Johnson & Johnson, and Goldman Sachs were among the rare stocks that finished the session high. Tesla was down 8%, while Apple, Microsoft and Disney fell.
So it can be a busy day …
- 12.30 GMT: Vice President of the Bank of England Dave Ramsden: Speaking at the Institute of Certified Public Accountants in England and Wales
- 13:30 GMT: US January Personal consumption expenditure data
- 15:00 GMT: University of Michigan’s US consumer confidence survey