Despite Fed Dismissing Inflation Concerns, Treasury Yield Volatility Persists
[Asia Economy New York=Correspondent Baek Jong-min] Strong consumer demand fueled a sharp rise in government bond yields, preventing the New York stock market from escaping a mixed trend centered on tech stocks.
On the 17th (local time), the Dow Jones Industrial Average rose 90.27 points (0.29%) to close at 31,613.02, the S&P 500 fell 1.26 points (0.03%) to 3,931.33, and the Nasdaq dropped 82.00 points (0.58%) to finish at 13,965.49.
Before the market opened, the Commerce Department announced that January retail sales surged 5.3% month-over-month, returning to growth after four months. This figure far exceeded the market forecast of a 1.2% increase compiled by Dow Jones. Although this was an indicator that the backbone of the U.S. economy, consumption, had revived, concerns that it could fuel inflation pressured the market.
Last year, increased consumer spending was a positive factor for the stock market, but it has now turned into a negative factor holding the market back. In fact, on this day, the 10-year U.S. Treasury yield rose intraday to 1.33%. A rise in bond yields means a decline in bond prices.
In the afternoon, the upward trend in bond yields eased after the Federal Reserve's FOMC meeting minutes were released. The Fed stated in the minutes that there is still a long way to go for economic recovery and that it will continue its accommodative monetary policy and asset purchases. There was no mention of early tapering (reduction of asset purchases) as some had expected.
The Fed again dismissed inflation concerns and voiced a different stance from the market. Some Fed officials believed that inflation would rise over the next few months but did not see the upward pressure as strong enough to warrant a change in monetary policy.
The rise in government bond yields has been pulling gold prices down day after day. On the New York Mercantile Exchange, April delivery gold closed at $1,772.80 per ounce, down 1.5% ($26.20). This is the lowest level since June last year. Unlike gold, silver showed strength, rising 0.44%.
Tech companies, beneficiaries of low interest rates, showed weakness again amid the strong bond yields. Apple shares fell about 1.8%, but Tesla managed to recover from the previous day's weakness and rose 0.24%.
The Dow Jones index closed higher as Verizon and Chevron shares showed strength.
International oil prices rose again due to the cold wave in Texas. On the New York Mercantile Exchange (NYMEX), March delivery West Texas Intermediate (WTI) crude oil closed at $61.14 per barrel, up 1.8% ($1.09) from the previous day.
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