Stocks Rise, Yields Ease, and Yen Leaps Amid Market Volatility
By Caroline Valetkevitch
Market Movements and Economic Developments
Stock Indexes Rebound After Declines
NEW YORK, Sept 2 (Reuters) - Stock indexes mostly rose on Wednesday after three days of declines as investors watched for new developments in the U.S.-Iran conflict, while the Japanese yen rose sharply against the U.S. dollar.
Currency and Bond Market Dynamics
Yen's Sharp Rise Against the Dollar
It was not immediately clear what prompted the yen move. The currency had retraced over the last month about half of the gains made after a rare joint intervention by the U.S. and Japan at the end of July. The yen was last up 0.79% at 158.92 per dollar.
U.S. Treasury Yields and Global Borrowing Costs
U.S. Treasury yields eased from multi-year highs. The rise in borrowing costs across major economies had deepened concerns about tighter monetary policy and deteriorating fiscal conditions.
Geopolitical Tensions and Oil Prices
Focus on U.S.-Iran Conflict
Investors remained focused on Iran. Fears of renewed escalation gripped the Middle East after the U.S. and Iran exchanged their biggest barrage since July. The flare-up threatens to deepen a conflict that has dragged on since the U.S. launched strikes on Iran in February.
Oil Price Movements
Oil prices rose about 1% amid worries about further disruption to energy supplies. Brent crude futures gained 98 cents, or 1%, to settle at $95.63 a barrel. U.S. West Texas Intermediate crude futures rose 79 cents, or 0.9%, to settle at $91.01.
Wall Street and Global Stock Performance
Wall Street's Partial Rebound
Wall Street stocks ended higher in a partial rebound from their recent fall, which was tied to the escalation in the Middle East and the global bond selloff.
"We're seeing a little bit of a relief rally in stocks after the underperformance that came" with higher yields, said Rick Meckler, partner at Cherry Lane Investments, a family investment office in New Vernon, New Jersey.
Investors may be looking for bargains after the recent selling, he said. "The (U.S.) economy itself remains strong, so one of the difficulties in investing in stocks is that a strong economy often leads to higher rates, and you have that tension between good earnings and the potential for the competition that bonds can offer... Most investors have remained committed to stocks."
Major Indexes and Global Markets
The Dow Jones Industrial Average rose 295.07 points, or 0.56%, to 53,061.95, the S&P 500 climbed 35.13 points, or 0.46%, to 7,666.60 and the Nasdaq Composite was up 118.05 points, or 0.45%, to 26,217.83.
MSCI's gauge of stocks across the globe was 0.14 points higher at 1,142.87 after ending lower for the previous three sessions. The pan-European STOXX 600 index fell 0.24%.
Bond Yields and Central Bank Policy
U.S. and Japanese Bond Yields
The yield on benchmark U.S. 10-year Treasury notes shed 0.2 basis point to 4.794% and was on track to snap its longest streak of daily gains since March. The yield hit an earlier high of 4.818%, its highest since November 1, 2023.
The yield on 10-year Japanese government bonds held above 3% for a second straight session after hitting a three-decade high earlier this week.
Federal Reserve and Rate Hike Expectations
Traders have recently increased bets on a Federal Reserve interest rate hike. They now assign a roughly two-in-three chance that the Fed will deliver a 25-basis-point rate increase this month, up from 37% a week ago, according to CME Group's FedWatch tool.
Upcoming Economic Data and Fed Meeting
Ahead of the Fed's September 15 to 16 meeting, investors are looking to upcoming U.S. economic data for clues on whether the economy remains strong enough to justify monetary policy tightening. The key monthly U.S. jobs report is due on Friday.
On Wednesday, the U.S. ADP National Employment Report showed private employment rose by 38,000 jobs last month, below the 48,000 increase expected by economists polled by Reuters, after an upwardly revised 46,000 in July.
"We're in this situation now where policy becomes very difficult, and then you get data like today in the ADP number, which was a miss, showing a pretty slow pace of growth," said Thomas Urano, co-chief investment officer at Sage Advisory in Austin, Texas.
Other Central Banks and Inflation Risks
Policy meetings of the European Central Bank and the Bank of Japan will also be closely watched as markets gauge how far major central banks are prepared to tighten policy in response to persistent inflation risks.
Hawkish BOJ board member Hajime Takata said on Wednesday that the central bank should conduct interest rate hikes nimbly to counter intensifying inflationary pressures, rather than adhere to a fixed semiannual pace anticipated by markets.
Commodities Update
Gold Prices
In the metals market, spot gold rose 1.33% to $4,386.29 an ounce.
(Reporting by Caroline Valetkevitch in New York; Additional reporting by Medha Singh in Bengaluru, Chuck Mikolajczak in New York and Gregor Stuart Hunter in Singapore; Editing by Gareth Jones, Philippa Fletcher and Jamie Freed)