By Barbara Kollmeyer
Investors were in a risk-averse mood on Friday, driving down yields on both sides of the Atlantic after a spate of interest rate rises from global central banks with expectations of more to come.
What yields are doing
Market drivers
Investors have been absorbing a flurry of interest-rate hikes by central bankers on Thursday, notably a bigger-than-expected 50 basis point hike from the Bank of England. Concern is rising that central banks could push too hard in their inflation fight and tip economies into recession.
Data from Europe showed a loss of momentum for business activity in the eurozone for June, according to a purchasing managers survey The European Central Bank has vowed to keep pressing on with interest rate hikes. And the Federal Reserve is also expected to increase rates twice more this year, Fed Chairman Jerome Powell said on Capitol Hill this week.
Jumpy investors drove up the dollar , which rose 0.5% against a basket of currencies. The yield on the 10-year gilt slid 8 basis points to 4.278% and German bunds dropped 12 basis points to 2.373%.
In the U.S. on Friday, the S&P flash U.S. services and manufacturing purchasing managers index for June are due at 9:45 a.m. Eastern. Cleveland Fed President Loretta Mester is expected to speak at 1:40 p.m.
Investors also took note of comments from U.S. Treasury Secretary Janet Yellen, who said recession risks have faded “because look at the resilience of the labor market, and inflation is coming down,” in an interview with Bloomberg that published Friday.
What analysts are saying
“After bigger than expected rate hikes in the UK and Norway yesterday, the markets are nervous about upside rate surprises, and that was helping the dollar overnight, even before we saw the European PMI data,” said Kit Juckes, chief FX strategist at Societe Generale, in a note to clients.
“U.S. resilience is clear, but saying a recession looks unlikely is only encouraging if inflation can be brought down without one. The “Miracle on the Hudson” was to land the plane safely, not to avoid going into the water at all (because then, it would have hit a building). Markets have reacted to Ms Yellen’s comments by pricing in a little more tightening than they did before and 2-year yields have moved above 4.75%,” said Juckes.
-Barbara Kollmeyer
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06-23-23 0731ET
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