Facing a heavy week of Treasury debt sales, where some $183 billion of 2-, 5- and 7-year notes go under the hammer, Treasury yields have backed up slightly despite the Fed optimism. First out of the traps on Tuesday is $69 billion of two-year paper.
Irking Treasury yields additionally has been a pop higher in world crude oil prices this week amid renewed tensions in the Middle East and outages in Libya, although U.S. crude gains have been modest and remain negative year-on-year.
The latest test of U.S. economic resilience comes with a readout later on consumer confidence for August, but Friday’s release of the Fed-favored PCE inflation gauge probably marks the biggest macro data release of the week.
The dollar index recovered marginally from Monday’s lowest level in more than year – in line with firmer Treasury yields. But 100 basis points of Fed easing remains in futures prices to the end of the year – implying that markets think at least one of the Fed’s three remaining 2024 meetings will deliver a 50bp cut.
San Francisco Federal Reserve President Mary Daly on Monday said “the time is upon us” to cut interest rates, likely starting with a quarter-percentage point reduction in borrowing costs. Asked if there was anything that could derail a rate cut at the U.S. central bank’s Sept. 17-18 policy meeting, Daly told Bloomberg TV that it “would be hard to imagine at this point.”
The yen slipped back too, however, helping Japan’s Nikkei higher.
Chinese mainland stock markets fell back, with news of 100% Canadian tariffs weighing on shares of electric vehicle and steel makers and downbeat comments about domestic demand dragging on e-commerce shares. It was a more mixed picture in Hong Kong, with financials steadying the Hang Seng.
European stocks were higher, helped by miners.
BHP Group said it will focus on growing its copper business through existing and incoming projects after its failed attempt to buy Anglo American, as it reported a better-than-expected 2% rise in annual underlying profit.
