What’s Moving Markets: Treasury Yields, SPR Refill, and Slumping U.K. Retail Sales
U.S. Treasury Yields Soar to Highest Levels Since Financial Crisis
U.S. Treasury yields reached their highest levels since the financial crisis, causing stocks to decline. This surge was triggered by a speech from Fed Chair Jerome Powell, where he highlighted the need for caution despite the economy’s resilience. Powell acknowledged the emerging risks and emphasized the importance of considering all incoming data and the balance of risks when making monetary policy decisions. The benchmark 10-year Treasury yield briefly hit 5%, a level unseen since 2007. The market’s acceptance of higher borrowing costs suggests that economic activity has proven more robust than expected.
Futures Slip as Investors React to Powell’s Speech
U.S. stock futures declined as investors expressed concerns over rising bond yields and the ongoing Israel-Hamas conflict. The benchmark 10-year Treasury yield’s climb to levels not seen since the 2007 financial crisis, following Powell’s speech, led to a sell-off in major indices. However, the economic data slate for the day was largely empty, with attention focused on appearances from Fed officials. Additionally, investors analyzed earnings reports from companies such as American Express, Regions Financial, Comerica, and Schlumberger.
Slumping U.K. Retail Sales Highlight Economic Struggles
The U.K. consumer faced significant challenges, including a cost-of-living squeeze and surging energy costs due to Russia’s invasion of Ukraine. Retail sales in September fell by 0.9%, exceeding expectations of a 0.2% decline. Retailers attributed the decrease to ongoing cost-of-living pressures and unseasonably warm weather affecting clothing sales. These economic difficulties have political implications, as evidenced by the Conservative Party’s loss of popular support. The opposition Labour Party’s recent victories in by-elections indicate potential shifts ahead of next year’s general election.
China’s Evergrande Revises Debt Restructuring Deal
China’s property sector debt crisis took another uncertain turn as Evergrande Group announced revisions to its proposed offshore debt restructuring deal without providing specific details. The restructuring plan failed to meet regulatory requirements, raising concerns among bondholders about possible liquidation. Peer company Country Garden also missed a $15 million coupon payment, putting it at risk of default. A non-payment would trigger one of China’s largest corporate debt restructurings and further exacerbate the country’s real estate crisis.
Crude Prices Boosted by U.S. Plans to Refill Strategic Reserves
Crude oil prices rose due to heightened geopolitical tensions in the Middle East and the U.S.’s decision to refill its strategic oil reserves. The ongoing conflict between Israel and Hamas, along with President Joe Biden’s revived plan to replenish the Strategic Petroleum Reserve, contributed to the market’s positive sentiment. The U.S. Department of Energy announced two separate offers to purchase crude oil, totaling 6 million barrels. This move comes after the U.S. government drew approximately 200 million barrels from the reserve to combat high gasoline prices caused by the Russia-Ukraine war.
