Yields fall, stocks rise after US Fed officials’ comments; oil slips

NEW YORK, USA – Global stock indexes advanced while Treasury yields slid on Tuesday, October 10, following further dovish comments by Federal Reserve officials, and oil prices eased a day after gaining sharply on violence in Israel and Gaza.

MSCI’s gauge of stocks across the globe gained 1.02%, extending increases for a fifth straight session.

Atlanta Fed Bank President Raphael Bostic on Tuesday said the US central bank does not need to raise rates any further, and expects no recession ahead.

The remarks followed comments late on Monday, October 9, from top-ranking Fed officials, who indicated that rising yields on long-term US Treasury bonds – which directly influence financing costs for households and businesses – could keep the Fed from further increases in its short-term policy rate.

US Treasury yields fell on the comments but also partly on a safe-haven reaction to continuing violence in the Middle East.

Cash Treasury markets had been closed for the Columbus Day US holiday on Monday, so Tuesday was traders’ first chance to react to Palestinian militants’ surprise attack on Israel over the weekend as well as Fed officials’ overnight comments.

Israeli air strikes hammered Gaza on Tuesday as Israel took revenge for the Hamas assaults that have triggered some of the worst blood-letting in 75 years of conflict.

Benchmark 10-year yields posted their largest daily drop since mid-July, while those on 2-year notes had their biggest daily decline since late August. In afternoon trading, US 10-year yields fell to one-week lows and were last down 12.5 basis points (bps) at 4.657%.

“The [Israel] conflict got the ball rolling as far as people moving into Treasuries from the standpoint of safety,” said Ellis Phifer, managing director of fixed income capital markets at Raymond James in Memphis, Tennessee. “The Fed added a bit of fuel to that move, by sounding a little bit more dovish.”

The Dow Jones Industrial Average rose 134.65 points, or 0.4%, to 33,739.3, the S&P 500 gained 22.58 points, or 0.52%, to 4,358.24, and the Nasdaq Composite added 78.61 points, or 0.58%, to 13,562.84.

The pan-European STOXX 600 index rose 1.96%.

Brent crude fell 50 cents, or 0.57%, to settle at $87.65 a barrel. US West Texas Intermediate crude slipped 41 cents to settle at $85.97 a barrel. At the session low, both benchmarks were down by more than $1.

Israeli markets and the shares of companies exposed to Israel have been hit hard. Israel’s shekel traded at 3.9550 to the dollar, just off an almost eight-year low hit on Monday, after the central bank pledged $30 billion to stem the sell-off in the currency.

Also in the foreign exchange market, the euro rose 0.3% against the dollar to $1.0604, while the dollar index, a measure of the US currency against six others, slid about 0.19% to 105.75, well below last week’s 11-month high of 107.34, after touching the lowest level this month.

Joseph Trevisani, senior analyst at FXStreet in New York, said Bostic was partly responding to the outburst of violence in Israel and Gaza. “You’re looking at the typical and standard and historically repeated reaction of the Fed to a crisis that [would] lower rates if things get ugly in the Middle East,” he said.

Gold prices eased after rising nearly 2% in the previous session as investors cautiously turned back to riskier assets. – Rappler.com