US Treasury Triples Long-Term Bond Buyback Size

Market Wrap-up: Treasury Yields Rise; Oil Climbs Above $100 

 US markets came under pressure during the previous session as Treasury yields climbed to their highest levels since November 2023, while oil prices extended their gains above $100 per barrel.

The US Treasury announced that it would purchase up to $6 billion of 10- to 20-year Treasury bonds in its 10 September buyback operation, following last month's commitment to at least double longer-dated buybacks from $2 billion to $4 billion.

Despite the larger operation, the 10-year US Treasury yield rose as high as 4.8528%, its highest level since November 2023. Some Wall Street investors had expected an even larger buyback of around $7 billion to $8 billion, leaving the announcement below some market expectations.

Higher Treasury yields coincided with further weakness in US equities, which recorded their third consecutive daily decline. The Dow Jones Industrial Average fell 0.77% to 52,380.66, while the S&P 500 declined 0.48% to 7,636.36. The Nasdaq Composite dropped 0.64% to 26,253.34.

The DXY recovered modestly but remained below 99.00. Meanwhile, spot gold rose 1.5% to $4,418.71 per ounce.

In Europe, the euro held above 1.1600 ahead of the ECB's interest rate decision. Markets expect the ECB to raise rates by 25 basis points to 2.5%, which would mark its second increase of the year. Expectations for further tightening have been shaped by the latest data showing that eurozone inflation rose back above 3% in August.

Oil prices also continued to move higher amid developments involving the US and Iran, with markets assessing the potential implications for energy supplies and shipping routes in the Middle East.

Reuters reported on Wednesday that Iran said it had attacked 10 vessels near the Strait of Hormuz after the US sank five Iranian oil tankers. According to the report, this was the largest series of attacks involving shipping activity by either side since the six-month conflict began.

Brent crude gained 3.4% to $101.21 per barrel, its highest closing level since May. US WTI crude rose 3.3% to $96.05 per barrel.

Meanwhile, US fuel prices reached fresh record highs, with petrol hitting a record $4.15 per gallon on Labour Day. Goldman Sachs warned that oil prices could rise above $120 per barrel amid an increasing number of attacks involving oil transportation.

Looking ahead, markets will continue to monitor developments in the Middle East alongside the ECB's interest rate decision. Attention will also turn to US PPI and Core PPI data for further signals on inflation and the interest rate outlook, alongside Initial Jobless Claims.

DXY:

Key takeaway:

The US dollar recovered modestly as Treasury yields remained elevated, although selling pressure persisted in the near term.US PPI and Core PPI data will be closely watched for fresh signals on inflation and the interest rate outlook, which could provide further direction for the dollar.Technical Outlook:

Daily Bias: BearishSupport: 98.60   Resistance: 99.00    

Gold:

Key takeaway:

Gold moved higher as the US dollar remained subdued.Demand for gold remained supported amid broader market caution.Technical Outlook:

Daily Bias: BullishSupport: 4,375 Resistance: 4,434 

Oil:

Key takeaway:

Oil prices continued to rise amid reciprocal actions by the US and Iran involving shipping activity, keeping concerns over potential supply disruptions in focus.US fuel prices continued to reach new records, while Goldman Sachs warned that oil prices could rise above $120 per barrel.Technical Outlook:

Daily Bias: BullishSupport: 95.00 Resistance: 98.00 

EUR/USD:

Key takeaway:

The euro remained steady ahead of the ECB’s interest rate decision later today.Markets expect a 25-basis-point increase to 2.5%.Technical Outlook:

Daily Bias: BullishSupport: 1.1621  Resistance: 1.1654   

Calendar Watch:

ECB Interest Rate Decision: Markets are watching for the ECB’s latest policy decision and guidance.US PPI and Core PPI: Key data for assessing inflation trends and the interest rate outlook.Initial Jobless Claims: A further indicator of conditions in the US labour market.Middle East Developments: Markets will continue to assess potential implications for oil and broader risk sentiment. 

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