Dollar gains some ground
Amid rising bond yields and falling equity markets, the dollar has also gained ground with the US currency strengthening by around half a cent against both the euro and sterling to $1.0540 and $1.2140 respectively. This in turn sees the euro continue to trade just below 87p against the pound this morning.
US 10-year yields rose sharply again yesterday and have climbed further in overnight trading; they are now closing in on 5%, having increased by around 35bps so far this week. There was also a spike in equivalent UK yields, which rose by the best part of 15bps to 4.65%, while German yields saw a more modest increase of circa 5bps to 2.92% (with both edging higher this morning).
Rising bond yields weighed on equity markets with US and European stocks shedding around 1% yesterday, while the latter are lower again at the start of play today.
Fed member Waller says he believes the central bank “can wait, watch and see how the economy evolves before making definitive moves on the path of the policy rate,” suggesting he favours keeping interest rates on hold at the next meeting at the start of November. However he added that he will continue “looking carefully at the data to see whether the economy begins to cool off or whether prices heat up.”
The Fed’s latest Beige Book notes that the “near-term outlook for the economy was generally described as stable or having slightly weaker growth (and) labor market tightness continued to ease,” while “firms expect prices to increase the next few quarters, but at a slower rate than the previous few quarters.”
The annual rate of CPI inflation in the Euro area was confirmed at 4.3% in September according to the final reading, down quite sharply from 5.2% in August helped by positive base effects (there was a large increase in prices in September last year that was not repeated this September).
Markets will be paying very close attention to Fed Chair Powell’s scheduled speech to the Economic Club of New York today, while on the data front, jobless claims, existing home sales, and the Philadelphia Fed manufacturing Index are due in the US.