Trading leveraged product involves significant risk of loss. 21.57% of retail investor accounts generate profits when trading leveraged products with this provider

Article Hero

Bonds value goes up as Central Banks might halt rate hikes

Miguel A. Rodriguez
Miguel A. Rodriguez
24 August 2023

As the ECB and Fed are expected to cool rate hikes, treasuries increased in price and dropped in yield, as a result of profit grabbing. Indices responded with an increase in value, most likely sparked by the interest rate reduction and Nvidia's earnings report. 

As bonds go up, their yield goes down

Bond prices increased globally as dismal economic data from the US and Europe supported predictions that major central banks will hold off on raising interest rates in order to prevent a recession.

Germany's manufacturing and services PMIs both stayed at very low values, particularly the services PMI, which fell to 47.3 and went below the growth threshold. The S&P Global Composite PMI in the US was similar, and it was also getting close to breaking the 50 level.

Following the release of data, bond rates fell significantly in both Europe and the US. During the session, the US 10-year bond dropped 9 basis points.

 

What will the ECB and Fed decide?

Both the ECB and the Fed are expected to suspend rising rates at their upcoming meetings, but unlike the ECB, the Federal Reserve is expected to emphasize that rates must remain high, ruling out rate cuts. When Jerome Powell talks at the Jackson Hole symposium tomorrow, we'll presumably get more details.

As a result, after the rise that we saw virtually the entire month of August, the downward movement in yields for US Treasuries can be linked to a technical movement of profit-taking. 

 

Stock indices respond to interest rates

Despite this, all stock market indices in the US rose because of the interest rate reduction, especially the Nasdaq, which is the most interest rate sensitive. This improved performance was also influenced by expectations for the microchip manufacturer Nvidia, which released its second quarter earnings at the end of the day.

Tech100_Daily Graph_24.08.2023.png

TECH100 Daily Graph, 24.08.2023.

The California-based business that creates graphics processors which drive artificial intelligence has been at the epicenter of the world's enthusiasm over the advancement of this technology.

Its market value has increased by more than $1 trillion this year as a result of the share price's tripling, and its outlook for the remainder of the year could have a negative impact on investors mood generally.

Sources: Bloomberg, Reuters

Key Takeaways

  • Bonds prices rose as rate hikes might be halted to avoid recession.
  • Germany's lagging in its manufacturing and services PMI.
  • The ECB and the Fed might diverge in their approach to interest rates.
  • Stock indices got pumped over interest rates and Nvidia's earnings.
  • Nvidia's market value added $1 trillion this year alone. 

Related Articles:

Bonds

Stock Indices

 

The information presented herein is prepared by capex.com/ae and does not intend to constitute Investment Advice. The information herein is provided as a general marketing communication for information purposes only.Users/readers should not rely solely on the information presented herewith and should do their own research/analysis by also reading the actual underlying research. The content herewith is generic and does not take into consideration individual personal circumstances, investment experience, or current financial situation. 

Key Way Markets Ltd shall not accept any responsibility for any losses of traders due to the use and the content of the information presented herein. Past performance and forecasts are not reliable indicators of future results.

Share this article

How did you find this article?

Awful
Ok
Great
Awesome

Read More

Miguel A. Rodriguez
Miguel A. Rodriguez
Financial Writer

Miguel worked for major financial institutions such as Banco Santander, and Banco Central-Hispano. He is a published author of currency trading books.