Treasury Yields Rise as Dow Falls for Third Straight Session

Market Wrap-up: Treasury Yields Rise as Rate Expectations Firm

The Dow Jones fell for a third consecutive session on 24 September as US Treasury yields reached their highest levels in years, putting pressure on economically sensitive stocks. The Dow Jones Industrial Average fell 161.61 points, or 0.31%, to 51,349.98. The S&P 500 slipped 0.02% to 7,704.13, while the Nasdaq Composite rose 0.01% to 26,939.37.

Equities recovered from their session lows after Reuters reported that US and Iranian negotiators in New York were considering a phased agreement aimed at ending the conflict in the Middle East. Under the reported proposal, Iran would reopen the Strait of Hormuz while the US would lift its economic blockade of Tehran.

Oil prices nevertheless remained elevated. Brent crude rose 3.4% to $106.60 a barrel, while WTI crude gained 2.7% to $94.61. Brent had earlier climbed around 5% to an intraday high of $108.23 following reports of missile launches by Houthi forces allied with Iran towards Saudi Arabia.

US Treasury yields also moved sharply higher. The 30-year yield reached 5.501%, its highest level since June 2004, while the 10-year yield rose to 5.223%, its highest since June 2007. The two-year yield climbed to 4.941%.

Higher yields coincided with stronger expectations for further monetary tightening. Futures markets reflected increased expectations of another Fed rate increase in October, while three Fed officials indicated on Thursday that further policy tightening could be necessary. 

New York Fed President Williams said in London that expectations for another rate increase this year were reasonable. Cleveland Fed President Hammack said inflation risks were tilted to the upside, while Philadelphia Fed President Paulson said further moderate rate increases could be needed.

US economic data also remained firm. Initial jobless claims came in at 197,000, below the 201,000 forecast and the previous week's 198,000. New home sales increased 6.4% in August after falling 4.3% previously. S&P Global manufacturing and services PMI data released on 23 September also indicated continued strong business activity.

The US dollar extended its advance, with the DXY reaching 101.40, its highest level since late July, while spot gold traded around $4,270 an ounce. Gold was heading for a weekly decline of more than 2% as the stronger dollar and higher Treasury yields coincided with expectations that the Fed may need to keep raising rates to contain inflation.

Attention now turns to Friday's US durable goods orders, with headline orders forecast to fall 0.3% after rising 1.1% previously. Core orders excluding transportation are expected to rise 0.6% after increasing 0.4%. The final September University of Michigan one-year inflation expectations reading is also due at 14:00 GMT, with the forecast at 4.6%, while Williams and Hammack are scheduled to speak.

DXY:

Key takeaway:

DXY reached 101.40, its highest level since late July.Stronger US economic data and hawkish comments from Fed officials supported the dollar.Technical Outlook:

Daily Bias: BullishSupport: 101.00Resistance: 101.49 

Gold:

Key takeaway:

Spot gold traded around $4,270 an ounce on 24 September.Gold was heading for a weekly decline of more than 2% amid a stronger US dollar and higher Treasury yields.Technical Outlook:

Daily Bias: BearishSupport: 4,244Resistance: 4,303 

Oil:

Key takeaway:

WTI crude rose 2.7% to $94.61 a barrel.Brent crude gained 3.4% to $106.60, while prices eased from their intraday highs as reports emerged of possible US-Iran talks over reopening the Strait of Hormuz.Technical Outlook:

Daily Bias: BullishSupport: 92.81Resistance: 96.81 

Calendar Watch:

US Durable Goods Orders: Headline orders are forecast to fall 0.3% after rising 1.1% previously, while orders excluding transportation are expected to increase 0.6%.US University of Michigan Inflation Expectations (Final, September): One-year household inflation expectations are forecast at 4.6%, with the data scheduled for 14:00 GMT.Fed Speakers: New York Fed President Williams and Cleveland Fed President Hammack are scheduled to speak on Friday. 

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