The Dow Jones ended with losses of 120 points, but recovered over 200 points from the day’s low. The S&P 500 and Nasdaq, who were already outperforming the Dow by not falling as much, ended just below the flat line after recovering from the lows of the session.
Indices eased from the lows of the day despite the US 30-year treasury yield crossing the mark of 5.6% on Tuesday, making an intraday high of 5.61%, the highest since 2002, before cooling off from those levels. The note still trades at a yield of 5.57%, while the 10-year, after testing levels of 5.26%, remains near the 5.23% – 5.24% mark.
Here are the two reasons that prompted the market recovery:
New York Fed President John Williams in a speech on Tuesday said that one more rate hike by the Federal Reserve would be appropriate to curtail the ongoing inflationary pressures. However, he added that the hike could happen “later this year” and that there is no rush to raise rates again after the 25 basis points hike in September.
As a result of Williams’ remarks, the probability of the FOMC raising rates in October dropped immediately to 50% from 70% the previous day. Williams is the Vice Chair of the FOMC’s rate setting panel and a permanent voting member. The probability of a rate hike fell despite three of Williams’ peers continuing to warn of more hikes to curb inflation.
Another factor behind the recovery was the drop in crude oil prices, with Brent crude falling towards levels of $103 a barrel. While expiry related factors are at play, but JPMorgan in its note said that Crude exports from West Asia have reached 98% of pre-war levels at 17.5 million barrels a day, indicating that the supply side fears are easing.
Additionally, the US announced that it will release another 40 million barrels from its Strategic Petroleum Reserves, marking the last tranche of the 172 million barrels it had committed to releasing at the start of the Iran war, further easing supply pressures.
OPEC+ members, who meet later this weekend, are likely to keep production quotas for November steady, according to a Bloomberg report citing sources.
The Fed’s preferred inflation gauge, the Personal Consumption Expenditure (PCE) inflation figures will be released later this evening Indian Standard Time (IST). Economists expect the figure in August to rise 0.3% month-on-month and 3.7% year-on-year, well above the Fed’s 2% target.
Additionally, the third revised estimates of the second quarter GDP figures, advance trade balance in goods, data for consumer spending in August will also be released today. Minneapolis Fed President Neel Kashkari is scheduled to speak later today, while Micron Technologies will be releasing its quarterly results after market closing hours.