US stocks and bonds dropped after the economic data highlighted persistent inflationary pressures | 02/03/2023

US stocks and bonds dropped as investors raised their outlook on peak rates after the economic data highlighted persistent inflationary pressures. The prices paid component of the Institute of Management’s Index for February surged for the second straight month to 51.3. Adding to the worry for rising rates were comments from Federal Reserve Bank of Atlanta President Raphael Bostic. He called for continued interest-rate hikes to above 5% ensure inflation returns to the central bank’s target and doesn’t re-accelerate in a pattern similar to the 1970s. The S&P 500 closed 0.5% lower while the NASDAQ was down 0.65%.

Treasuries were pressured lower over the US morning session after a strong ISM prices paid component caused another hawkish repricing of the Fed’s policy outlook. Treasury yields ended cheaper by 4bp to 8bp across the curve with losses led by belly, cheapening the 2s5s30s fly by 5.5bp on the day; 10-year yields ended just below 4% after peaking through the big figure to highest since November in the aftermath of ISM data. Most losses were seen after traders digested a stronger-than-expected ISM prices paid component; Fed-dated OIS subsequently repriced to show a policy peak above 5.50% for the September meeting before settling back lower.

The dollar fell broadly amid outsized yuan gains after a Chinese purchasing manager index showed a surge in economic activity. The greenback losses were restrained, however, by higher Treasury yields following hawkish comments by Atlanta Fed President Raphael Bostic and a rise in the ISM price component. The New Zealand dollar was the best performer among Group-of-10 peers.

  • USD/JPY down 0.2% to 135.95
  • AUD/USD rose 0.5% to 0.6761
  • NZD/USD rose 1.2% to 0.6262
  • EUR/USD rose 0.9% to 1.0671

Crude oil futures rose 1.15%. U.S. crude imports decreased, while exports increased during the week ended Feb. 24, the U.S. Energy Information Administration said. Precious metals rose with gold rising 0.5% along with natural gas and gasoline futures. Elsewhere, cryptocurrencies climbed, with Bitcoin above $23,000.

Global event radar: Eurozone CPI Inflation (Today), National People’s Congress (5th Mar), RBA Meeting (7th Mar), BoJ Meeting (10th Mar), US Employment (11th Mar), US CPI Inflation (14th Mar), US Retail Sales (15th Mar), China Activity Data (15th Mar), ECB Meeting (17th Mar), BoE Meeting (23rd Mar), US FOMC Meeting (23rd Mar), Eurozone CPI Inflation (31st Mar).


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Lenny Hayes

Chief Technical Officer