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.
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
- 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.